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How Important Is It to Have a Rainy Day Fund?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

rainy day fund
Be prepared for the unexpected with a rainy day fund.

Life is unpredictable, which is why a rainy day fund is one of the most important components of a sound financial foundation. Even the most prepared, organized people can be caught off guard and put into a difficult financial situation when the unexpected arises. Because of this, it’s essential to have money tucked away in an emergency fund and a rainy day fund. While most people would agree that having easy-to-access cash is important, 29% of households have less than $1,000 in savings, according to a recent MagnifyMoney study.

In this post, we’ll explain exactly what a rainy day fund is, how much you should save and how to start one today.

What is a rainy day fund?

Rainy day fundEmergency fund
Money set aside for predictable expenses, like a roof repair or trip to the mechanic. Money set aside for unpredictable, and unplanned for expenses such as job loss, divorce or a sudden change in income.

Often, the terms rainy day fund and emergency fund are used interchangeably. While they are both savings accounts that can be used to pay for the unexpected, they differ in a few key areas. It’s important to learn the difference between the two types of savings accounts and contribute to both.

A rainy day fund is a designated amount of money that has been set aside for one-off expenses that you can typically predict the need to pay for at some point. Rainy day funds should be easily accessible and used to cover expenses that fall outside of your normal budget. This fund can be used to pay for things like car or house repairs, broken appliances, additional taxes, children’s field-trip fees, or last-minute travel expenses. While these expenses are usually not part of your monthly budget, you could likely anticipate the need to pay for them once or twice a year. So, a rainy day fund comes in handy.

“The number one reason to have a rainy day fund is peace of mind,” said Corbin T. Green a financial advisor in Salt Lake City. “People are able to go to bed knowing that if something were to happen, there are funds available to take care of that.”

This fund allows you to pay for smaller, one-off expenses without going into debt or pulling from your checking account and throwing off your well-planned budget that is used to pay for predictable monthly bills and expenses.

An emergency fund is exactly what it sounds like—a reserve of money or savings account that you can quickly access in case of an unexpected and unplanned life emergency. Typically, emergency funds are used to pay for unexpected, longer-term events such as medical bills, job loss or divorce.

“If something were to happen where you got laid off, left a job or got injured, having an emergency fund protects you and buys some time,” Green said.

Experts suggest having three to six months’ worth of money in this account that you could easily access and use to run your household and pay your monthly bills in the case of an emergency.

How to save for your rainy day fund

rainy day fund side gig
Consider taking on a side gig to bring in extra cash for your rainy day fund.

It can seem daunting to put extra money away each month, but saving money is a key part of smart financial planning. We know it’s important to save for your rainy day fund, but how do you get started? Here are some easy ways to save more money each month:

  • Create multiple savings accounts: Instead of lumping all your money into one savings account, create multiple savings accounts to help you distinguish between the emergency fund and the rainy day fund. If you ever need to access either of these accounts, you’ll know which one to pull from.
  • Automate your savings: It’s easy to say you’ll put extra money into your savings account at the end of each month once bills are paid. But, if you don’t pay yourself first, at the end of the month, you likely won’t have saved what you originally intended. By automating your savings, you’ll automatically have money set aside each month and won’t have to worry about it. Treat your savings as a bill and pay it automatically, on time, each month.
  • Reduce your spending: Money saved is money earned. If you’re looking to save for a rainy day fund, try trimming your spending and adding a little more each week or month to your fund. Cut back on eating out or your daily coffee run and put that money towards your fund.
  • Take on a side hustle: Many millennials are taking on additional work or side hustles as a way to earn more money. If your full-time salary isn’t cutting it, consider taking on a side hustle as a way to quickly boost up your rainy day fund.

Where to keep your rainy day fund

rainy day fund
The best place to stash your rainy day fund is in a savings account, where you can easily access the money in a time of need.

Now that you’ve built up some money for your rainy day fund, where should you keep that money? You want to find a safe place to store your money that gives you easy access to the funds in a pinch but can also allow you to earn interest on your funds.

The best options

Saving accounts: A savings account is a no-brainer when you’re looking for a place to stash your rainy day fund. Savings accounts are FDIC insured and offer better interest rates than checking accounts. Check out the best savings accounts here.

Money markets: Money markets are a type of account that usually offer higher interest rates than checking or savings accounts. You can access more money relatively easy, but money market accounts may limit the number of withdrawals each month. Also, most money market accounts require a minimum balance to be met.

Avoid these options

Checking accounts. Checking accounts probably aren’t the best option for your rainy day fund. They give you quick, easy access to your money, but often offer low, if any, interest. You may also be more tempted to spend the cash if it’s readily accessible in your checking account and you’ve got a linked debit card you can use.

CDs. CDs often charge early withdrawal penalties when you try to cash them out before your term is up. Since emergencies are unpredictable, avoid locking your rainy day fund up in a CD. Stick to accounts that offer easy access like a savings account.

What to spend your rainy day fund on

rainy day fund
A home repair or unexpected medical bill are two examples of a good time to dip into your rainy day fund.

Rainy day funds are usually not used to cover ongoing, long-term, emergency events. “If it’s a true emergency, it’s usually not a materialistic expense,” said Green.

Rainy day funds can be spent on things like car repairs, new tires, and emissions and inspections. Or perhaps you need a new washing machine, fridge, roof or floor? Rainy day funds are meant for such expenses. Most people wouldn’t budget for a new roof because it’s a one-off expense. However, it’s somewhat predictable that you’ll have to repair your car or home at some point, so this type of fund is the perfect financial resource for occasions like this.

However, if you lose your job, become sick or are unable to work for a sustained period of time, you would not use your rainy day fund, but instead, pull from your emergency fund.

“Use your emergency fund when something impacts your ability to earn a paycheck or you lose your income and need to use it [emergency fund] to pay your bills and live off of it,” Green said.

Why a rainy day fund is important

rainy day fund

Change is the only predictable thing in life. It’s almost inevitable that something unplanned will occur requiring additional money to pay for it. Knowing this, it’s smart to plan ahead and prepare for the unexpected. Having a rainy day fund is important because it gives you peace of mind and financial protection in case something happens. This type of fund is extra padding in your budget that can keep you out of debt and on track financially, no matter what unexpected life event unfolds.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Sage Evans
Sage Evans |

Sage Evans is a writer at MagnifyMoney. You can email Sage here

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Banking

Make Saving Fun with the 52-Week Money Challenge

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Everyone should treat saving money as a serious effort to accomplish serious goals. Building an emergency fund, accumulating a down payment for a home or saving up for a big purchase are all key objectives for your financial life, after all.

But sometimes it’s OK to take a more lighthearted approach to savings, like the 52-week money challenge. It’s a great way to gamify the process of stashing cash — although just because it’s fun doesn’t mean it’s an easy win. If you keep up with this unusual challenge for a whole year, you could end up saving nearly $1,400.

The 52-week money challenge explained

The 52-week money challenge — also referred to as the 52-week savings plan — makes saving a decent sum feel achievable by breaking it down into small steps.

Here’s how it works: You start by putting $1 in your savings account in the first week of the challenge. Then you stash away $2 in week two, $3 in week three, $4 in week four, all the way to $52 in the final week. At the end, you’ll have saved $1,378.

The idea is that by saving a little bit more each week, you’ll see your savings grow quickly and stay motivated to continue putting away money after the challenge is over.

“The 52-week money challenge gives you a place to start and have it all mapped out. If you can focus on it once a week, you can make it happen and know where you’re going to end up at the end of the year,” said Kelly Crane, CFP, president and chief investment officer of Napa Valley Wealth Management.

Why the 52-week money challenge works

Many people credit the 52-week money challenge with jump-starting their savings game. Here’s why:

  • It makes saving a habit: The 52-week savings plan forces you to commit to saving. When you visit your bank and transfer money from your checking account into your savings account each week for 52 weeks, saving becomes a habit.
  • You end up with a decent amount saved in the end: An abstract goal of “saving money” may not motivate everybody. For some people, the big prize at the end of the year helps them follow through with the savings habit.
  • It helps you set bigger financial goals: Your savings account balance is just a number — what you do with the money is what really matters. The balance saved in the challenge lets you think about the financial goals you’d like to accomplish, such as paying down student loans or accumulating a down payment for a mortgage.

Tips for nailing the 52-week money challenge

Ready to take the challenge? Here are a few things you can do to ensure you stick with the plan from week one through week 52.

  • Automate your savings: Most banks allow you to schedule deposits into your savings account. The simplest way to accomplish the challenge is to arrange ahead of time transfers to your savings account for the correct amount for each of the 52 weeks.
  • Don’t go in order: The order of the scheduled deposits helps make the challenge simple, but you don’t have to follow it to a tee. If you feel like you need to make deposits out of order, print out a copy of the plan and cross off different weekly amounts as you accomplish them. For example, if you get a tax return in the spring and can afford to save $52—the biggest weekly deposit—do it then and cross it off.
  • Engage in friendly competition: Find a savings buddy and start the challenge at the same time. Competition will keep you motivated to save, and maybe even open the door to sharing financial tips with each other.
  • Set reminders and smaller goals to stay on track: If you don’t want to automate your savings, set reminders on your phone, calendar or computer so you won’t forget. If you’re feeling overwhelmed by the higher amounts later in the challenge, break them down into smaller goals. In week 40, you could save $20 on Monday and another $20 on a Friday to hit your weekly goal in more manageable chunks.
  • Keep the challenge going for a second year: Once you hit the end of the 52 weeks, keep the momentum going into a second year. You could even try doubling the amount you save each week in year two. Try cutting out expenses that match the amount you save in a given week. Stash the second year’s funds in a CD to boost your savings.

Who might not like the 52-week money challenge

While this 52-week savings plan has universal appeal, it might not be the right choice for everyone. For some people, there are reasons to think twice:

  • People with a large amount of high-interest debt: Saving money can feel pointless if you’ve got a lot of debt collecting interest, said Crane. You might consider using your funds to pay down high-interest debt before pursuing the 52-week money challenge.
  • People with inconsistent income: Does your paycheck fluctuate week to week? You might feel like your income isn’t consistent enough to keep up with the plan.
  • If you tap into the savings too early: As you start to see your savings grow, it can be tempting to withdraw money to cover expenses or buy something you want. But tapping the savings too early might throw you off track and undermine the driver of the whole challenge: Ending up with a full $1,378 at the end of the year.

The bottom line on the 52-week money challenge

If you want to save money but you’re not sure how to start, the 52-week money challenge can give you the structure you need to finally get your finances in order — but it’s just a tool. Don’t be afraid to modify the plan to suit your needs, or ditch it altogether in favor of a more aggressive savings strategy.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Joni Sweet
Joni Sweet |

Joni Sweet is a writer at MagnifyMoney. You can email Joni here

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Banking

How to Ensure Your Mobile Check Deposit is Successful

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Banking on the go is one of the great conveniences of owning a smartphone. All major banks offer some form of mobile banking, and uptake among consumers is extremely strong. A 2018 Citibank ranked-choice survey found that 31% of respondents said mobile banking was their most-used app, behind only apps for social media and weather.

Not using mobile banking? Time to join the revolution. Read on for some basic tips that should help make you a mobile banking power user.

Get started with mobile banking

Mobile banking is broadly similar to logging on to your account online with a home PC or laptop. Nearly all banking apps let you check your balance, deposit checks, transfer money and set up custom account alerts. To get started, visit the app store offered by your mobile device and search for your bank or credit union. Carefully evaluate that you are selecting the correct app for your institution, then download and install the app.

Once you’ve installed the app, you will probably be required to set up a mobile account. This may be different than your existing online login, or the credentials may be the same for the standard online experience. Either way, the app should prompt you with easy-to-understand instructions.

One other point: Keep the app updated to ensure that the latest security measures are in place and bugs are fixed from previous versions. Newer versions of an app may have newer features. Many apps update automatically, but you should still check the settings on your phone to ensure you’re getting the updates you need.

Tips for a successful mobile check deposit

One of the premier features for mobile banking users is the mobile check deposit feature: Just take a photo with your device of the checks you wish to deposit, and submit them to the app. To ensure that the mobile check deposit process goes smoothly, follow these tips:

Take a clear photo

You want to make sure the photo is clear so that the information is prominently displayed. Consider putting the check on a table or a flat surface instead of holding the check. In addition, don’t have other objects in the frame such as other paperwork and use good lighting. Your mobile app may have a rectangular guide to show you how to take your photo, which makes sure you get it right.

Remove any check stubs

You want to make sure that your deposit only shows your check. If your check has a pay slip or another form of attachment like a check stub or voucher, detach it before taking a photo.

Enter the correct information

Even if your photo is clear, your deposit could get rejected if you’ve entered incorrect information. For example, your check may show an amount of $660, but if you accidentally enter $760 the deposit will be rejected. Double check all information before submitting your deposit.

Avoid redeposits

Mistakes happen. Maybe you forgot you’d already deposited a check, or someone in your family did so and never told you. If you redeposit a check, most places will either send you a notification of a duplicate deposit. Others may reject both deposits or charge you a fee. You may want to consider organizing your checks, perhaps by writing on the check itself that you deposited it, or putting it away in a separate folder.

Check to see if your mobile check deposit was successful

Your app should let you know if a mobile check deposit has gone through, and some banks also send a text or email confirmation message — but even if you receive this message, checks can still get rejected. Double-checking to see if the mobile check deposit went through is the safest bet, by looking at your account balance in your checking account. Depending on your bank, a mobile check deposit can take several business days to show up in your account.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Sarah Li Cain
Sarah Li Cain |

Sarah Li Cain is a writer at MagnifyMoney. You can email Sarah Li here

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