No matter your income bracket or financial standing, it's recommended that all of us have at least three months' worth of living expenses stashed away in a bank account or other accessible method. This should also be considered separate from any retirement fund you may have, and not considered interchangeable. Just as this rainy day fund may prove important down the line, that retirement fund is going to be just as important.
The good news is that your rainy day fund will not sap you nearly enough as your retirement fund likely is, though the two together will probably cause some leaner months than you're used to. Everyone though has expenses which can be cut out that may have a minimal impact on their lives and level of comfort while saving quite a bit of money. You may find that even after you've reached the point of having your rainy day fund saved up you might enjoy that extra money in your pocket each month for other uses than what it was you were spending it on.
The first matter of business is to calculate just how much money your rainy day fund should contain, based your monthly expenditures. This includes all bill payments, money for gas, groceries, and other household expenditures, and enough extra money on top of that that you feel you justifiably need to live each month. If you feel that when leaner times hit you could do away with some of those expenses at that point, then feel free to calculate your rainy day fund without some expenses.
Next is determining the amount of money you'll need to save away each month, and over how long of a period. Depending on how frugal you're willing to be should the need for the rainy day fund arise, you may find that you really don't need to save up a whole lot of money. In that case you may be able to choose a shorter term plan in the 2-3 year range. If you choose to go longer term, you're monthly payments could be minimal. This may be tempting, but remember that the need for this fund may arise before you've had the chance to save for it. Make the choice of length based on the highest amount of money you feel you can realistically set aside each month. You'll be kicking yourself if you get laid off and can't find a replacement source of income before your incomplete rainy day fund runs out, all because you wanted to eat more takeout each month when you should've been saving more.
Which leads us to the items you can cut out of your daily expenditures to more easily make these monthly payments. This is just good personal finance and budgeting. Take out or find dining is a big one, as are other things like going to the movies or other entertainment events. All of these can be easily substituted with other comparable options that will save you a lot of money. Rent a movie or watch one T.V instead and eat more home cooked dinners. If you buy your kid(s) a video game each month, considering renting them 5 games throughout the month instead. This will give them greater variety and could save you as much as $50 a month. Little things like that quickly add up and make it possible to reach those monthly payments easier than you may think.
Once your fund is stashed away don't forget what it's there for. Seeing that large sum of money in your account may tempt you to impulsively spend it on a vacation or big ticket item. Feel free to spend any interest it builds up as a small extra source of income, but leave the set amount alone. You may also want to re-examine your monthly expenditures every year or two to ensure your rainy day fund is still covering you for at least 3 months expenses based on your current lifestyle, and adjust the balance of your fund accordingly if necessary.
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