emergency funds


Life is very unpredictable! While no one can predict the future, we can prepare for it, and emergency funds and rainy day funds are two great financial tools to prepare for life uncertainties. However, there are differences between what makes something an emergency, and what’s just a plain old rainy day.

What’s the difference?

An emergency fund should be able to replace your income in case of an emergency. A rainy day fund should cover incidental expenses, like car repairs and home repairs, that don’t have a place in your regular budget.

Although these funds have different purposes, they serve the same goal of keeping your family financially afloat. Whether you lose a job or have to spend a lot of money to fix your heating and air conditioning system, a loss of income or a big expense can send a household into debt.

Possible uses

With a rise in natural disasters, many people have had to literally run for their lives. A hurricane or a wildfire can cause your family to have an unexpected hotel stay for several weeks. A rainy day fund can help to cover these sudden expenses.

Economic experts suggest emergency funds be large enough to cover 3-8 months of your household expenses. If you lost your job, there is no guarantee that you’ll find another one quickly. The job search will be less stressful if you have enough money for your monthly expenses. Whenever your income is reduced, it’s important to stay out of debt so that you can maintain a good credit score.

Easier said than done

Many households live paycheck to paycheck, so saving one month’s worth of expenses is extremely difficult. If an emergency fund, or even a rainy day fund, seems out of reach, consider cutting down expenses.

Pay off small debts to reduce overall expenses, and live within your means. It’s better to live in a smaller home than to have the added stress of going into debt when you’re going through a financial emergency.