Do You Have a Rainy Day Fund?

None of us know when a crisis is going to hit, and a job loss or sudden disability can be financially devastating. A common financial planning rule-of-thumb suggests you should have at least six months of living expenses readily available to meet urgent short-term needs.

If you haven’t established a cash reserve, here are some steps you can take to build that rainy day fund:

• Budget a savings amount as part of your regular household expenses.
• Use payroll deductions, so the money automatically goes into your savings account.
• If you get a raise or bonus, put some (or all) of it into your savings fund.
• Reduce your discretionary expenses and put them toward your fund.
• Consider banking earnings from investment dividends.
• Set up a money jar where change and small bills are put in at the end of each day.
• Open a savings account at a different institution, so you are less likely to spend the money.

You’ll want to make sure that your cash reserve is readily available when you need it. Considering loans as part of your cash reserve strategy is disadvantageous. When absolutely necessary, look at other loan sources, such as a home equity or personal line of credit, as these often have lower interest rates than credit cards.