We all know how important it is to save, whether to buy a house or to meet certain financial goals. But have you ever thought about the importance of creating a rainy day fund? Rainy day funds are essentially savings accounts containing money that can be used for emergencies. So why are these type of savings accounts so important?
You may feel secure in your current job, earning an income that lets you live comfortably. Then, one day, you could unexpectedly be hit by some bad news, whether that’s losing your job or a sudden need for home repairs. You never know what’s going to happen in life, which is why keeping a substantial amount of money aside that can be used when you’re struggling to make payments is so essential.
Rainy day funds can contain whatever amount of money you like, although the higher the savings you have, the better. The more money you’re able to save into an emergency fund means the better financial freedom and peace of mind you will have if your finances take a turn for the worse. As a rule of thumb, your emergency savings fund should hopefully contain at least three months of money to cover things like bills, food, and other things you can’t live without. Depending on your usual monthly outgoings, three months of these costs can come to a lot of money. So what should you do if you’re struggling to save this type of amount?
There are many savings methods for those struggling to gather enough cash necessary for a solid rainy day fund. One of the most popular methods of managing your finances is the 50/30/20 rule. With this, you split your monthly income into three spending categories — your ‘needs’, your ‘wants’, and your savings. Fifty per cent of your monthly income should be dedicated towards your ‘needs’, which covers bills, mortgage payments, food and transport, then thirty per cent will go towards ‘wants’ which is non-essential things like the odd evening out or a new clothing item. The twenty per cent that you’re left with can then be put aside into a savings account. Often, you may find that 50 per cent of your monthly income is too high an amount for your essential payments, which leaves you with extra money left over which you can also put into savings.
For those who don’t feel they currently earn enough money to save a good amount for their rainy day fund, it might be worth considering ways to boost your income overall. One of the most popular ways that people earn money alongside their full-time job is investing. Whether you decide to invest in stocks and bonds or property, you’d be surprised what a difference this venture can make towards your monthly funds. Property is often considered the best investment venture thanks to the returns it can bring and the lower amount of risk involved. If you do decide to invest in property, keep in mind that the area you invest in and the type of property you choose can impact the success of the investment. Properties in the UK, for instance, present better opportunities in cities like Liverpool and Manchester, with property investment company RW Invest offering high rental yields and excellent capital growth potential. Other ways to earn more money to add to your savings include taking up a part-time job, looking for a new higher-paying role, or freelancing to earn some extra cash each month.