Qapital's Guide to

Rainy Day Funds

Curious about rainy day funds? Maybe you’ve heard the term before but aren’t quite sure what it means, or how a rainy day fund is different from an emergency fund. We understand – it can be confusing to know what to save for, and how or when you should be saving money for all of life’s different occasions and surprises. Luckily, we’ve got you covered here with everything you need to know about rainy day funds, including what they are, if you need one, and how you can start saving for a “rainy day.” 

What is a rainy day fund?

A rainy day fund is a reserve of money that you keep on hand for unexpected expenses. Perhaps your pet needs surgery, or one of your home appliances breaks down, or your child wants to attend a costly summer camp – all of these are potentially significant one-time expenses that don’t normally factor into your monthly budget. The point of a rainy day fund is that you can use money you’ve already saved to cover these expenses and avoid derailing your budget or incurring extra debt from loans or credit cards. 

Like an umbrella that can keep you dry when it rains, a rainy day fund can ease the inconvenience of these one-time, short-term expenses. Unexpected things can happen at any time, and while we can’t predict what might happen in the future, we can try to prepare for a variety of unexpected scenarios. 

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Is a rainy day fund the same as an emergency fund?

The short answer is no, a rainy day fund  is not the same thing as an emergency fund. Though they sound similar in that each one is meant to protect you in case of an unexpected expense, there are a few key differences.

As we’ve already mentioned, a rainy day fund is meant to cover short-term expenses that are not accounted for in your monthly budget. These expenses can include things like:

  • Paying for appliance repairs or replacements
  • Vehicle maintenance or repairs
  • Smaller, one-time medical expenses, like braces for your teenager
  • Activity fees for your children
  • An annoying parking or traffic violation ticket (we all make mistakes!)

However, an emergency fund is different. An emergency fund is not meant to mitigate inconvenience it’s meant to sustain you over a potentially long period of time during a crisis. These could be situations like:

  • Serious medical emergency
  • Job loss
  • Quitting a job that makes you miserable
  • Leaving an unhealthy relationship
  • Other drastic change in your monthly income

Because an emergency fund is a safety net that is meant to sustain you over a period of time, most experts recommend having a considerable amount of money saved up – at least three to six months’ of your regular living expenses. Since a rainy day fund is meant to cover one-time expenses, you’ll likely have much less money saved in your rainy day fund than in your emergency fund anywhere from a couple of hundred to about $2,500 should be enough for a rainy day fund, as long as you replenish your account as necessary. 

Do I really need a rainy day fund if I already have a robust emergency fund?

If you already have three to six months’ of living expenses (or more) saved in your emergency fund, you might wonder if you really need a rainy day fund at all. Why not just borrow from your emergency fund? Is a separate rainy day fund really necessary?

The short answer? Yes. Just as you itemize the expenses on your monthly budget, so too should you itemize your savings it’s an important part of finding your Spending Sweet Spot and knowing how to save money effectively. Having an itemized list of where your money is going gives you a clearer picture of how well you’re saving for life’s various expenses, including emergencies and “rainy days.” It can also help you spend appropriately; imagine that your refrigerator suddenly needs to be replaced. Having a rainy day fund of $1000 is a guide to how much you can spend on a new one; if you’re simply borrowing money from your emergency fund, you might wind up spending more than you need, and opening yourself up to falling short on money in the event of a real crisis.

Therefore, keeping your rainy day fund in a Qapital Goals account that is separate from your emergency fund also serves as a mental reminder that your emergency fund is for emergencies only

How do I set up a rainy day fund?

To begin setting up your rainy day fund, first take stock of any areas in your life that could potentially incur unexpected expenses in the next six months to a year. 

  • If you’re a homeowner: This could mean potential appliance repair or replacement, small-scale cosmetic changes or repairs, or preparing for potential storm damage.
  • If you have children: Is it possible that your children will require braces, glasses, or other health-related equipment in the near future? What will you do in case of a child care emergency? What about sport or activity fees, or paying for clubs and camps?
  • If you have a car: If you own a vehicle, that means you’re on the hook for any costs related to maintenance or repair. Batteries die, transmissions blow out, and brakes and tires will eventually need to be replaced – it’s better to plan for that now than worry about how to pay for those things later.
  • If you have a pet: Vet bills can be expensive. It’s a good idea to have extra money on hand in your rainy day fund to pay for pet medications, vaccinations, or even unexpected surgeries.

Once you have a good idea of what kinds of expenses you could incur and how much you might need to save for them, you can set up a separate savings account for your rainy day fund. Because you’ll need it to be readily accessible, a traditional savings account or an online money market account are the best places to keep your rainy day money. It’s easy to open a Qapital Goals account for your rainy day fund, and our app will help you keep an eye on all of your saving buckets so you can make sure nothing is being neglected.

How do I begin to build a rainy day fund?

Saving for a rainy day is a lot like saving for any other occasion the hardest part is just getting started! Once you establish your saving goals, create an account, and automate your savings, you’ll be well on your way to building a strong rainy day fund. Here are some tips to get you started and making saving money easy:

  • Pay yourself first by automating your savings: There’s no better way to save for a rainy day fund than to make saving the first thing you do come payday. Many people think that paying bills and buying necessities should take priority over saving, but then they often find that by the end of the month, there’s nothing left over to save. You can break out of this cycle and start saving more money each month by automating your savings. Qapital’s Payday Divvy feature allows you to transfer money automatically from one account to another, which can help you save more money toward your rainy day fund, as there is less chance that you’ll forget or miss a transfer than if you were to do it yourself. You can even start small by automatically saving $1 per day, or by setting small weekly increases, until you are regularly saving a certain percentage of your monthly income toward your rainy day fund. Even just 5% of your monthly income can turn into a pretty healthy rainy day fund in just a few months.
  • Use windfalls to your advantage: If you get a raise at work, receive some extra money from a friend or acquaintance for an occasion, or otherwise come into a little bit of extra cash save it! It can be tempting to use it to treat yourself, but remember that saving money is really just saying, “I’m going to spend this later.” By using windfalls to your advantage, you can really beef up your rainy day fund and free up some of your other income to put toward other goals.
  • Monitor and replenish your rainy day fund as needed: Once your rainy day fund hits your savings target whether it’s $500, $1,000 or even $2,500 you can begin to put the money you were saving for a rainy day toward other things, like boosting your emergency fund or increasing contributions to your retirement accounts. However, once you begin to draw money from your rainy day fund, make sure you are also replenishing it in equal measure so that you’re not caught off guard later. 

With a little bit of discipline and attention to your income and savings habits, you can easily build a rainy day fund that will help you sleep a little easier at night, knowing that you’re prepared for whatever life has in store. 

Rainy Day Funds - FAQ

Can I have a rainy day fund instead of an emergency fund? 

Sure, you could keep your emergency fund money lumped together with your rainy day fund, but it’s not advisable to do so. Keeping them separate helps ensure that you’re saving enough money for any kind of unforeseen circumstance. Otherwise, you risk being caught unprepared – it would be terrible if you used up the money in your emergency fund to cover a period of unemployment, only to get back to work and have your car’s transmission blow out with no money left over for repairs. And since a rainy day fund is much smaller than an emergency fund, whatever you save likely won’t be enough to serve as your safety net in the event of a real crisis. 

How much should I have in a rainy day fund?

A rainy day fund is basically just a reserve of cash that you can use for one-time expenses that fall outside of what is normally covered by your usual budget. Whereas an emergency fund will normally contain several months to a year’s worth of living expenses, a rainy day fund will usually consist of much less money. Start with at least $500 and continue to save a little each month until you have a reserve of $1,500 to $2,500. That should be more than enough to take care of any unexpected expenses that arise just make sure to replenish your rainy day fund as needed, so you’re not caught off guard later.

Where should I keep my rainy day fund?

Since you want any money you have in a rainy day fund to be readily accessible in case you need to use it, it’s best to keep that money in a regular bank account. Opening a Qapital Goals account can help you build a rainy day fund by automating your monthly contributions and finding extra opportunities to save with “IFTTT” recipes. It’s not a good idea to keep it in a Certificate of Deposit or any other account where your money is going to be “locked up” even for a temporary period of time, since you never know when you might need to use the money in your rainy day fund.

What should I save for once I have a rainy day fund?

Once you have enough money saved in your rainy day fund, you can move on to either starting an emergency fund or adding to it until you have at least six months’ worth of savings. If your emergency fund is already pretty healthy, then you can use the money you were contributing to your rainy day fund to add to your retirement funds, a college savings account for your children, or paying off any existing debts. You can also begin to save for more short-term goals, like a new car or a vacation, or use that extra money for fun if you’re already on track to meeting your saving goals in other areas



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