Why Rainy Day Funds Matter?

Saving money for future plans is something that everyone focuses on doing, be it for education, travel, family or leisure. There are funds separated for such goals and objectives and are spent without second thought because they meet their purpose.

CONSIDER A SITUATION where a health complication arises upon a family member. Health scares are stressful, terrifying, exhausting and humbling. It’s ideal to remember this because in the moment, you will most likely be least concerned about personal finances.

When the doctors’ reports and conversations start becoming more real and you are held firmly by fear and stress, there is one thought that will slowly creep up your spine, and becomes one giant anxiety inducing thought:

“How are we going to pay for this?”

Even though there are savings and collections that are kept safe, most people do not have funds available for emergencies. Despite having kept money away for targeted goals, people tend not to have emergency funds and would simply be unable to pay emergency expenses or would have to borrow or sell something to pay it. Even if the idea is to take it one day at a time, emergencies are always unpredictable and distressing.

There are certain factors that insurance can’t cover for as well, and when incidents as such occur, the situation becomes particularly difficult from a financial standpoint. So it is best to ensure some funds set aside for such dramatic and stressful conditions.

“Rainy Day Funds are not about what you plan for. They are for the events in life that you never could have fully expected.”

Disease, illness, injury, damage to personal property – these are by their very nature unexpected events.  So, we plan for the unplannable.  We prepare for the unexpected so that if it occurs, money can stay off your mind and you can focus solely on the things that matter.

So give it some good, because rainy day funds are at the core of any successful financial plan. Here’s why:

•If you have a rainy-day fund in place you have shown an ability to save and are less likely to rely on credit cards to juice your spending power.

•Without an adequate rainy-day fund, any of the events described above could put a family in serious financial hardship. 

•Having a rainy-day fund in place allows you to invest more aggressively in other areas, such as your retirement accounts, business investments, entrepreneurial ambitions, or even career growth.

•It lowers the risk of needing to prematurely tap into your retirement accounts, and allows them to continue growing.

•Adequate emergency savings increase life optionality.  Though we often think of money in terms of the ability/inability to consume, true financial well-being is about increasing your ability to choose how to spend your time.  Being debt-constrained with little cash is limiting and does not leave you with many options. On the other hand, having an adequate rainy-day fund is the first step to increasing your own financial freedom.