Build Your Rainy Day Fund

Like an emergency fund, it can come in handy.

Provided By: Nathan Cacka, CPA at Cordell, Neher & Company, PLLC

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 helps us handle major financial disruptions, but for minor disruptions, it’s important to have a rainy day fund.

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 that could last 3 to 6 months: a serious illness, a job loss. Rainy day funds are much smaller in that they are normally intended for expenses ranging from $250 to $2,000. A rainy day fund is created in anticipation of certain expenses, rather than as a response to unforeseen emergencies.

As an example, say you have a 2012 Ford Explorer with 100,000 miles on it, at that age and usage level you know there is a good chance that you are going to have a significant repair, you just don’t know when it will happen. 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. Home appliances need servicing and repairs; a rainy day fund dedicated to your home appliances may help allay costs. Dental work can become expensive. Your child’s youth sports team costs. Veterinary bills for your furry family members. 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. You can fund your account by direct deposit by allocating a portion of your paycheck, utilize one of the many savings apps that round up your purchases and then have your change go directly into a savings account, or you could use the tried and true rainy day fund jar.

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 also 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.1

Rainy day fund is about peace of mind. When things breakdown and large expenses come, it can be very stressful, but it doesn’t have to be if you are prepared for those events. Instead, you will be able to feel a sense of relief and satisfaction in knowing that you wisely prepared for that moment.


1 – [7/10/18]

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