Credit: Shutterstock photoFor many Americans who live paycheck to paycheck, the idea of establishing a rainy day fund seems like a pipe dream. Those struggling just to make ends meet often have a hard enough time putting food on the table and paying for fuel and utilities, let alone trying to actually save money.
It is also important to note the fact that interest rates on savings accounts are insultingly low. Taking this into account, it is easy to understand why millions of American families have practically no savings. However, saving for a rainy day should be viewed as a duty, rather than an option.
Because rain always comes
The number one reason you should establish a rainy day fund is because, unfortunately, things do go wrong in life. Tires go flat, heating and air conditioning systems break down, medical emergencies unfortunately happen and all of these occurrences require financial resources to resolve.
A rainy day fund will give you the peace of mind that you will have at least a level of ability to deal with unexpected emergency expenditures.
Because a rainy day fund makes you reevaluate your budget
Most experts recommend putting away at least three to six months’ worth of expenses in your rainy day fund. However, when calculating your essential expenses, you will soon find that many of your current daily and weekly expenses are not actually essential, and may even be wasteful.
Many people routinely spend money on expensive coffees and treats, cigarettes and alcohol and other nonessential expenditures. When budgeting for your rainy day fund you will have the opportunity to reduce or eliminate such nonessential expenditures, or at least gain better control of them.
Your rainy day fund gives you the confidence to invest
Another important reason to have a rainy day fund is because having such a fund gives you the confidence to invest in yourself or your business. For example, if you have $10,000 set aside for a rainy day, you can more easily envision taking night classes or other courses which may help you advance in your career.
The cost of taking such classes may seem prohibitive if you have no rainy day savings at all. In that case, the lack of savings would make the investment seem less secure, as you would have had nothing to fall back on if you had agreed to pay for the classes and then an emergency expense popped up.
Saving for a rainy day teaches you self-discipline
No one says that saving for rainy day will necessarily be easy. Perhaps you’ll have to find the money to save by reducing or eliminating current expenditures, or even working more to earn extra money.
However, after establishing and funding your rainy day fund, you’ll have proven to yourself that you can take control of your own finances. You’ll have learned that with self-discipline and a worthy goal, you can achieve that which may have seemed barely possible in the past. This newly developed self-discipline can help you find even more success as you take on additional challenges in your life.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
