We’ve all heard it a million times: how important it is to save for a rainy day and have the funds cover those unexpected expenses that pop up from time to time.
But here’s the thing: it’s not as easy as it sounds. In a world where credit is so accessible, it’s tempting to hand over the plastic to cover those surprise costs. Your credit card may even feel like a security blanket for you; it’s there for you when you need it. But we need to shift this perception — your credit card is not there to serve as a rainy-day fund.
So, what makes a rainy-day fund and why is it essential? Let’s dig into it.
A rainy-day fund is the money you tuck away to only be used when an unexpected event happens in your life. It’s not a let’s-order-delivery fund for those evenings you don’t feel like cooking, or a I’d-like-a-new-pair-of-shoes fund. Rather, it’s an untouched pot of gold you can access when life throws a surprise your way.
Consider this scenario: you’re driving to work and something goes wrong with your car. At the same time, your freezer decides to quit. Now, you have two major purchases you need to make. You could reach for your credit card, but then you’re stuck allocating your future income to covering those costs.
A rainy-day fund, on the other hand, covers those costs upfront without adding to your debt load.
By continuously turning to credit to cover those costs, you run the risk of spiraling into a pile of debt that could take you months, or even years, to pay. And if you’re constantly stretched paying down debt, how will you build up your savings for your next unexpected expense. And you know it’s coming.
The key to saving is to make it a habit. It doesn’t have to be a substantial amount that you put away, you can start small. This will give you the confidence of some small wins to help you carry on.
Keep in mind that a little goes a long way. Fifty dollars each month will eventually turn into a fund that will cover you, not only on a rainy day, but in a thunderstorm. Not to mention, it’ll leave you with peace of mind to know you can cover surprise costs.
You may find it helpful to review your budget to get an average of how much money you’re spending and where you’re spending it. To do this, track your expenses over a three-month period. There are different methods and tools to help you do this, like spreadsheets, applications, or putting pen to paper. You may be surprised to learn where your money is going.
In addition to gaining insight into your spending, this will let you see if there’s any wiggle room for you to put more money into your rainy-day fun. For instance, maybe you no longer need to access a certain monthly subscription and can allocate that money elsewhere.
Your rainy-day fund can also set you up, so you’re not surprised by annual irregular expenses. Every year, your property taxes need to be paid. By planning ahead and consistently setting money aside, you can make sure you have the funds to pay them in full, avoiding the need to use your credit card.
Our experienced advisors can help you define and meet your financial objectives. Whether you’re looking to make your money go a little further or manage your debt, our team is here to provide practical advice and solutions.
Reach out to today for a free, no-obligation consultation to discuss your debt management needs.
CIRP, LIT
Senior Vice President
Servicing: Calgary (Downtown), Red Deer, Drumheller, Calgary (NE), Airdrie
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