8 Tips to Help You Save For a Rainy Day
Tip #1 – Go for it!
Building a rainy day fund may seem overwhelming but if you set a specific savings goal and develop a savings plan you can do it. To develop a savings plan you will need a pencil and paper or a spreadsheet on a computer. Format the savings plan into a table with six categories:
- Savings Goal (the reason you are saving);
- Total Amount Needed (the total amount you need to save);
- Months to Reach Goal (the estimated time you need to reach goal);
- Monthly Amount to Save (the monthly amount you need to save);
- Strategies for Saving and About Saved Per Month (how you are going to find that money to save); and
- Safe and Secure Place for Saving (where you are going to put that savings).
Remember, the important thing is to start saving now, no matter how little, and then look for ways each month to increase the amount.
Tip #2 – Get on track
One of the simplest ways to find money to put toward a rainy day fund is to keep a close eye on where your money is being spent. For two or three months, keep track of every expense, including small ones. Tracking what you spend will give you a better idea of where your money is going.
Tip #3 – Establish a budget
Establish a budget that includes a spending and savings plan. Make sure your budget reflects the frequency of income received. So if you receive a paycheck weekly, bi-weekly or monthly, the budget should reflect dates of pay and anticipated pay amounts. This will help in allotting how much money is needed to pay your bills as well as ensure that you’ll have enough money to cover them when the time comes. To make an effective budget, break this list down into three parts:
- Essentials: Food, clothing, housing, transportation and health care.
- Non-essential monthly obligations: Cable, cell phone, gym memberships, subscriptions, etc.
- Required non-monthly expenses: Property taxes, insurance premiums, auto registration, and home warranties may come up once a year. Be sure to take these periodic expenses and calculate on a monthly basis and include in your budget.
Review your budget at the end of every month and determine if your spending was in line with your budget. If you spent less than planned, deposit the excess funds into your savings account. If you come up short, look for items to cut in your budget or ways to increase your income. If you discover any unnecessary expenses, devise a plan to reduce spending in these areas too. For example, you can “brown bag” your lunches, examine your phone to see if there is a less expensive plan, reduce your cable bill by switching from premium to basic channels, and reduce utility costs by dialing down the heat/AC and turning off lights and electronics when not in use.
Tip #4 – Make saving hands-free
Treat your rainy day account like you’d treat any other financial obligation. If your goal is to save $1,000 this year, calculate the amount you’ll need to save from each paycheck. To maximize your success, direct deposit your paycheck into your checking account, then arrange to have a portion of it automatically transferred into your savings account each time you get paid. For example, if your goal is to save $1,000 then you need to save $100 per month or $50 bi-weekly or $25 weekly. Pay yourself first. Your financial institution can set up automatic transfers into your savings account, either directly from your paycheck or from your checking account.
Tip #5 – Lay off the credit cards
If your goal is to save money, then don’t go into debt by making purchases on credit cards. Refrain from using credit cards and pay with cash or debit card whenever possible.
Tip #6 – Chalk it up to spare change
One money saving method that everyone probably does is save spare change. That’s right! Empty the change out of your purse or wallet into a jar each day. You’ll be amazed how it adds up. Another way to pump up your savings is to gather every $1 dollar bill that you have left at the end of the day and deposit it into your rainy day fund.
Tip #7 – Make it rain
One way to boost your rainy day fund is to save any extra income. If you receive a raise at work or bonus compensation, deposit the extra income into your savings account. The same applies to tax refunds. Also, if you finished paying off a loan on a car, furniture, or some other item, keep paying the same amount – this time into your rainy day fund. You’re already used to living without that money.
Tip #8 – Take the wheel
If you’re looking to get a bigger bang for your buck, then you may want to put your savings to work. There are a several savings financial products available at your financial institution. Select a savings vehicle that will not only keep your money safe but it will earn a small amount of interest each month.
- Certificate of Deposit (CD) is similar to a savings account, but has higher interest rate and you don’t have access to your money for a period of time. When you purchase a CD from a financial institution, you invest a certain amount of money for a specific period of time. Interest will accrue periodically throughout the term of the deposit until it reaches its maturity date (the date in which it will no longer accrue interest). CD’s can be purchased through banks, credit unions, or investment firms and are typically offered at fixed rates, although some investment institutions may offer adjustable interest rates.
- Money Market Deposit Account is similar to a generic savings account; however, it requires a higher minimum balance. Money market accounts are usually based on the current market rate of interest which means you will have a higher rate of return than a typical savings account. In most cases, you have similar access to your money as with your basic savings account allowing you to withdraw without penalty. You should check with your individual financial institution for a copy of its account agreement which outlines the terms.