One of the most important things when it comes to money management is having a “Rainy Day Fund”. (You will be sick of that phrase by the time you are finished reading this blog but stick with me) I am sure you all heard before about “Rainy Day Fund” and perhaps you have tried to set one up. If you have one already or not, this blog may benefit you either way. I would just like to talk to you about how I did it and how vital it has proved to be for me. It’s something that in my opinion, needs to be established as soon as possible. It is easier to set up than you may think. Let me talk you through it.
When I first heard about “Rainy Day Fund” it absolutely made sense to me. It was something that I quickly understood the importance of. However, just because I understood the concept doesn’t mean I knew how to create one. It was very difficult for me to put money aside for a “Rainy Day Fund” when everyday was my “Rainy Day” financially. However, I was bought into the idea and wanted to start something. I started off by a slicing a reasonable lump sum of money that I had in my bank account and transferring it to a separate account and calling it my “Rainy Day Fund” and job done. That was easy. Well, it was easy until all of my bills and rent piled up at the end of the month and I was crying out for that lump some of money to bail me out. So that idea was soon scrapped. I tried again, I started by putting aside a reasonable amount of money for a period of few weeks. That started to work but again, life got in the way and I emptied that “Rainy Day Fund” as fast it filled up. That plan was also quickly scrapped. You see the trick is to slowly build up your “Rainy Day Fund”. The trick is small amounts, regular intervals”, but more on that later on.
Here’s why a “Rainy Day Fund” is such a good idea. This is your safety net, your last line of defense, your life saver. When things turn for the worse (trust me, they will at some point) you have that bit of cash to bail you out. Things such as car expenses, kids expenses, hospital bill, college, school, overdue dentist appointment, insurance etc. There is a 1001 thing that could go wrong that will test you financially. Trust me. Yes, we learned, in previous blogs, that it is good to plan ahead and predict your expenses well in advance, but what about those expenses you don’t see coming. They are lurking, and they will hit you when you least expected. That’s just life. So instead of stressing about it when it happens why don’t we prepare for it while the times are good. That is the best time to create and uphold your “Rainy Day Fund”; when you are financially comfortable. You see, a lot of people are in too much of a comfort zone when times are good, you have a steady stream of income, you are healthy and your car is running smoothly etc. To me that’s a potentially dangerous attitude to have. Now, don’t get me wrong, I am not saying that you should suffer and save every single penny when the going is good. That’s madness. When the times are good, you should enjoy your financial freedom and treat yourself. Go on that holiday, go out for dinner instead of eating Pot Noodles, buy that latest phone etc. Money is there to spend. So spend it. But wait! Before you close this blog down and assume you should go on a big shopping spree, consider this – what are the chances that you may get into financial difficulty in the coming weeks, months, years etc. I would say a pretty good chance. Right? There are things that are within your control such as daily expenses, going on less holidays, skip fancy meals etc. but have you ever thought about external factors that are outside your control; inflation, recession, rent hikes etc. Well lets plan ahead for these inevitable struggling times and hopefully these “struggling times” wont be so struggling after all.
When times are good (and even if they are not) I am sure vast majority of us can afford to put aside €10-€20 a week for a “Rainy Day Fund” right? Think about it, if you put aside just €10 per week for a year you will end up with €520 after twelve months, €2600 after 5 years etc. That’s a lot of money isn’t it? That could bail you out of number of things. The size of your “Rainy Day Fund” entirely depends on you and your plan for the future. I heard many theories in the past of how big your “Rainy Day Fund” should be, some say 1/3 of your annual income, some say half of your annual income some say ¾ etc. There are many theories out there, but the only theory that matters is your theory. We are all different, we are all on different paths of life and we all have different commitments financially. If you can comfortably afford €10 to set aside per week then I would suggest do it as long as you can, having that extra bit of cash is never a bad thing. I myself will keep adding to my “Rainy Day Fund” until I need to dip into it, that may be next week or 10 years down the line. If I do end up dipping into that “Rainy Day Fund” then I will start all over again and build up that fund again. If you can afford more money to put into you “Rainy day Fund” then do it. The more the better. Sure, why would you stop, you never know when emergency may strike. So I would suggest keep building that “Rainy Day Fund” for as long as you can.
Thanks for reading and as always I welcome any feedback, comments, suggestions or ideas. I hope you all enjoyed the blog and I hope all of you start your own “Rainy Day Fund”. I hope you may never have to use it, but its always comforting to know that it is there. One more thing, apologies for keep saying “Rainy Day Fund” I must have said it 50 times I this blog, you must be sick of hearing it by now (but, I did warn you all). However, it is very important so having it stuck in your head for a day or two may not be such a bad idea. I am looking forward hearing your comments and keep spreading the word so more people can join us on this journey to financial freedom.
Talk to you on the next one.