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Build Your Rainy Day Fund

  • Writer: Michael Snowhite
    Michael Snowhite
  • Aug 16, 2018
  • 2 min read

Like an emergency fund, it can come in handy.

Sometimes, life gets expensive. A little bad luck or a twist of fate can hit us right in the checkbook and challenge us to live within our budget. An emergency fund may help us handle major financial disruptions. For the minor ones, a rainy day fund may suffice. A rainy day fund and an emergency fund differ in scale, but not purpose. Both funds are designed to fully or partly absorb sudden costs. An emergency fund contains enough cash to help a household through a sudden financial crisis: a serious illness, a job loss. A rainy day fund is built in anticipation of certain expenses, rather than as a response to unforeseen emergencies. It may be created just to deal with one probable future expense. As an example, think of a couple living in a desert community not far from a normally shallow or dry creek. Most years, the creek is no bother – but in two of the past 12 years, summer monsoons have caused the creek to swell, with a little water creeping into their backyard, patio, and kitchen on both occasions. Wisely, they start a rainy day fund to deal with the potential expenses that could arise from that impending rainy day. Rainy day funds can address all kinds of financial inconveniences. Cars need service and repair; a rainy day fund dedicated to auto maintenance may help allay costs. Dental work can become expensive. So can veterinary bills. College textbooks seem to be pricier each year. A rainy day fund can be built gradually, if preferred. Think $20 or $50 a month. Or, you can devote a lump sum to one. The cash can go into a savings account, a money market account that gives you the ability to write checks, or an interest-bearing checking account. How about an investment account or a certificate of deposit? That idea could have more downside than upside. A rainy day fund is not only about saving money, but easily accessing it. A CD gives you the chance to grow your invested assets, but if you want to quickly withdraw those assets, you may end up with a loss stemming from an early withdrawal penalty. Similarly, you could end up withdrawing less from a brokerage account than you put into it, due to investment underperformance. Newly revised data from the Bureau of Economic Analysis shows that Americans saved 6.7% of their incomes during 2016-17. This is encouraging. It suggests that consumers are being prudent, building cash reserves for both financially sunny and rainy days.

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Investment Advisory Services offered through Retirement Wealth Advisors, Inc. (RWA) an SEC Registered Investment Advisor. Michael Snowhite, California Educators Financial & Insurance Services, Retirement Wealth Advisors Inc. and RWA are not affiliated. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

This information is designed to provide general information on the subjects covered, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Michael Snowhite, California Educators Financial and Insurance Services and their affiliates do not give legal or tax advice. You are encouraged to consult your tax advisor or attorney.

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