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The Three Simple Steps to Save for a Rainy Day

The credit boom of the late-1990s and early-2000s precipitated a cultural shift in how people thought about money. It seems hard to believe now but credit was so readily available during this period that people would simply take out a loan or credit card to pay for the things they wanted, and worry about the payments later, whereas they would previously have put money to one side to save up for these things.

And so the idea of saving has become something of an alien concept to many but, given the rise in unemployment and the fact that lenders are no longer lending so readily, having an emergency fund has never been so important.

So if you are in the fortunate position whereby you can put money aside each month then you should be putting some into a ‘rainy day fund’ in case the worst should actually happen and you lose your job, have to go through a divorce or are hit by some other personal disaster.

Follow these three simple steps to successfully save for a rainy day:

1. Budget

Before you can start putting money to one side it’s important to know just how much you can afford to save. This is not only important to ensure that you do not put too much or too little in each month but also because it will give you a clear idea of just how long it will take you to reach your savings goal.

When creating a budget it is important to factor in everything you spend during the course of the month and you also need to break down and include any annual outgoings. So if your auto insurance amounts to $500 per year then you need to include that in your budget at around $45 per month. At this point it is also worth mentioning that it is a better idea to slightly overestimate your outgoings so you do not leave yourself short at the end of each month.

Once you have worked out your monthly outgoings you need to subtract this from your monthly income and this should leave you with a figure that you can comfortably put by each month.

2. Start saving

Once you have ascertained just how much you can put by each month, you then need to find a savings account that is best for you. The balancing act you need to perform at this point is finding a loan that not only offers you a good interest rate but one that also allows you the freedom to access your savings when you need them. There’s no point having a rainy day fund if you can’t access it when that rainy day finally arrives!

Another good tip is to look for an account that offers a bonus interest rate period whereby you can make more money on your savings. But it is also worth bearing in mind that, if you do choose an account like this, it makes sense to shop around and move your money to another account once that bonus period expires.

You could also consult a financial advisor to see if a tax free savings account, such as a Lifetime Savings Account (or an ISA if you are UK based), is best for your needs. This sort of savings account allows you to save a certain amount of money each year and whatever you put in is not tax-deductable and any returns on your investment are also tax-free.

3. Don’t dip into your savings

Once you have reached your savings goal then it is important that you do not touch the money unless you have a real emergency as it is not a holiday or new car fund, it is a safety net!

But what should be your safety net savings goal?

Studies have shown that most people take an average of between three and six months to get back on their feet after a job loss or personal crisis so this is something else that needs to be factored in to saving for a rainy day. In other words, your savings goal should be to cover between three and six months worth of outgoings.

So if your monthly outgoings are $1,500 then you should aim to save a minimum of $4,500 as this would cover you for a three month period. But, as a rule of thumb, you should aim to save as much as you possibly can as you never know how long it may take you to get back on your feet.

And if you are lucky enough to never have to call upon your emergency fund then it will continue to keep accruing interest and growing in value until you come to a point in life where you can use it for something you really want.

Article written by Les Roberts, savings specialist at

Picture by TheFasterDanish on Flickr

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