Saving and investing are more crucial than ever in a world where the Covid19 pandemic has rocked the global economy. Saving for an emergency fund and a “rainy day fund,” especially in uncertain times like these, is a great way to give you some peace of mind for the future. And because so many of us live paycheck to paycheck and frequently have less than a month’s income saved up in reserves, building a financial cushion is crucial to maintaining your budgeting goals and preventing debt accumulation.
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What Is An Emergency Fund?
An emergency fund is basically a financial safety net that guards you against unforeseen events in life. You can fall back on this fund in case of any emergency without having to borrow money or apply for a loan to help you out in a crisis
What Counts As An Emergency?
An emergency fund should only be used when something truly unexpected happens and you have no choice but to pay for it. For example:
- If you unexpectedly lose your job
- If you need to pay for sudden medical expenses
- If the economy goes into a recession and you lose a significant amount of income
What Is A Rainy Day Fund?
A rainy day fund serves the same purpose as an emergency fund—that is, to cover smaller unanticipated expenses. These one-time costs can be used to cover things like the following:
- Having to buy a new gadget
- Vehicle maintenance
- Paying to repair a home appliance
- Doctor or vet visits.
Rainy day savings can cover these short-term, unexpected costs without disrupting your everyday budget. That is why saving money for a rainy day is important!
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Benefits Of An Emergency And A Rainy Day Fund
Some of the advantages of having an emergency and a rainy day fund are:
You’ll develop a money-saving habit, and saving for the future is more likely to keep you from making hasty financial decisions in the present.
- You’ll lessen stress as you will be confident that you have a financial safety net.
- Having an emergency fund also prevents you from using up other savings accounts in times of need.
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Where Should You Keep Your Rainy Day Fund?
You must keep your rainy day fund in an account that’s easily accessible, such as a savings account. This way, you will be able to access it whenever you require and at the same time earn some interest (3%-6%) on your money. It is recommended to keep at least a month’s expenses as a buffer in our savings accounts for easy liquidity.
Recurring Deposits or Fixed Deposits
If you wish to battle inflation you may park your funds in recurring deposits (RD) or a fixed deposit. The interest rates will be a little higher than the interest you earn on a savings account.
Alternately chit funds are a good option too. You can make small monthly contributions to a chit scheme, for a fixed tenure of 2-3 years. Moreover, you can withdraw your money at the end of the tenure with good returns, and earn in the range of 10-15%. In case you need money urgently, you can withdraw the entire chit money anytime during the tenure.
The Money Club is an online chit fund platform. We have a successful track record and thousands of satisfied customers. We are one of the most popular chit fund platforms known for our customer satisfaction and secure investments. You can pick a chit scheme with an appropriate monthly installment for meeting several of your short-term financial needs.
Get in touch with us and start with an investment scheme!
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How To Save For A Rainy Day?
Setting aside cash for rainy day savings is fairly simple and definitely worth it. Starting and maintaining a rainy day fund may seem difficult at first, but if you follow these steps, it’s really easy. Here are 6 simple steps to start saving money for a rainy day:
Here’s how to make rainy day fund:
Make a budget
The first step for rainy day savings is to create a budget. By following these stages, you’ll be well on your way to start saving for an emergency:
- Track all of your expenses for 30 days, noting down all of your income and expenses.
- Make a note of your fixed and your variable costs. Your fixed costs are your necessary costs where you have no choice (rent, loan repayments, vehicle insurance). On the other hand, your variable costs are more flexible (groceries, recreation, etc).
- Now, decide what percentage of your variable costs you could use to contribute monthly towards your rainy day fund. For example, if your income is Rs 25,000 a month and your fixed costs are Rs 15000 a month, you’d be left with Rs 10,000 a month of variable costs. If you decide to save 25 percent of the variable cost, i.e Rs 2500 a month, by the end of the year, you would have saved Rs 30,000 which is a good rainy day fund. This is how you save from your salary and build your rainy day savings fund.
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Include your rainy day fund savings in your budget.
Before setting aside money for a rainy day, you should take a look at your monthly budget to determine where you can make cuts. You will need to reduce spending on an existing budget line in order to create this new rainy day fund because the money must come from someplace. Make your rainy day fund a priority in your monthly budget, just as you would pay a bill. There are many money saving apps with the help of which you reach your financial objectives.
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Start with what you have, no matter how small
Saving something is always better than nothing. For example, even if you manage to save Rs 200 a week, that will amount to Rs 9600 a year, which is a significant amount. An emergency might happen tomorrow, or not for ten years. If you continued to save Rs 200 a week for five years, then you’d still have a substantial Rs 48000 which can protect you from any financial crisis!
Automate your savings
It’s a good idea to make your rainy day savings fund automatic. This means setting up a monthly direct debit from your account into your savings account so that you don’t even have to do it manually. In this way you will not miss out and also be less tempted to spend it.
The habit of saving consistently matters a lot more than the amount you save. When you get used to it, saving becomes much easier. It’s all about consciously setting aside a little over time so that you aren’t struggling when an emergency crops up.
Increase the amount of saving gradually
Once you get into the habit of saving money regularly, you can gradually increase the amount of savings you make.
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It is never easy to save money but a rainy day fund gives you financial security. Rainy day savings prevent you from financial mishaps!
Your rainy day savings don’t let you get caught in life’s financial “rainstorms.” Prepare yourself so that when any unforeseen situation arises you can handle it without taking any loans and falling in the debt trap.
If you do not have a rainy day fund yet, let me tell you, you cannot ignore it and it is never too late to build one. Because emergencies can come knocking at the door at any time. Hence, be prepared and build a rainy day fund today!