Rainy Day Fund
An emergency fund or a rainy day fund is the bedrock of your financial well-being and existence. Without a proper emergency fund or rainy day fund in place, you are exposed to all of life's trials and troubles without any protection.
Precious treasure and oil are in a wise man's dwelling, but a foolish man devours it.
- Proverbs 21:20
- Proverbs 21:20
Everything You Need to Know About a Rainy Day or Emergency Fund
You know you need an emergency fund in place, but do you know why? All of the financial media says you should have a rainy day fund in place, but few discuss the reasons for such a recommendation. If you're going to do something this big, you should know the reasons. Here you'll find the most complete (and interesting) explanation for why you need a proper emergency fund in place.
Now that you know that you need an emergency fund or a rainy day fund in place, the next question is "How big should it be?" Read this article for an analysis and discussion of how big your emergency fund should be. In short, your emergency fund should be 3 months to 6 months of living expenses.
Now that we know that we should have 3 months to 6 months saved for our emergency fund, we need to know what living expenses are exactly. How do we properly calculate our monthly living expenses so that our emergency fund isn't too big nor too small - we want our emergency fund's size to be just right. Find out how to properly calculate your monthly living expenses in this in-depth article.
Now that you've got your rainy day fund in place, you need to put in the right place(s). In this article you'll find the 3 places you should keep your emergency fund in order to maximize liquidity, safety, and ease of access.
One of the places you should keep your emergency fund is a savings account (see #4), but what type of savings account is the best? Typically, an online savings account is the ideal place to store your rainy day fund. Read the article to find out why.
Now, on to the very important part - actually building up your emergency fund. You want to build up your rainy day fund quickly so that you can move on to other important parts of your financial plan or program - things such as saving for a down payment, building wealth, or taking a vacation. Don't fall into the trap of tediously building up your emergency fund slowly. Follow the 3 tips in this article for building your rainy day fund very quickly.
Just as building up your emergency fund initially is crucial, rebuilding it after a financial emergency is also crucial to your financial success. You should attempt to rebuild your rainy day fund with as much energy and vigor as you should have built it up, even though you may be discouraged. Read this article for help mustering the internal energy to get your emergency fund rebuilt.
Is it a real financial emergency or is it something else? Should you dip into your rainy day fund or would doing so be a foolish proposition? Read this article to understand what a proper financial emergency is so you don't foolishly dip into your emergency fund by mistaking a one-off or unusual expense for a real financial emergency.
If you truly do have a financial emergency on your hands, make sure to handle that financial emergency with skill or savvy so that you use less of your rainy day fund and recover fast.
A Rainy Day Fund is the Bedrock of Your Financial Well Being
An emergency fund is such a crucial part of personal finance and sound financial planning, that throughout history a rainy day fund stood out as one of the main pieces of financial advice given by elders, sacred texts, passed down knowledge, and stories. Investing was for the rich -- or for no one at all when communities lived at near-subsistence levels -- but an emergency fund (be it gold under the floorboards, stores of dried fruit and meat, stores of seed, cash under a mattress, etc.) was an ever-present part of financial advice throughout history and throughout the world.
In the 21st century, with easy access to credit and portfolio liquidity among other things, do we still really need to have a full emergency fund in place? Can't we get by with a smaller emergency fund or no emergency fund at all? Read this article for the answer and an interesting discussion on this topic.
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