The Rushmore Report – Rethinking the Rainy Day Fund

On the road to building personal wealth, everyone hits a roadblock sometimes. Whether it’s an unexpected job loss or a surprise medical bill, it’s bound to strike when you least expect it – and often when you’re least prepared for it. That’s when it’s time to tap into your rainy day fund. The classic savings account for a rainy day is designed for those unexpected misfortunes that might otherwise bring you to the precipice of a financial crisis.

American savings habits, however, are no longer what they used to be, and creating this financial shield in a world of shopping online, with overnight delivery, isn’t as easy as it used to be. A recent survey found that 57 million Americans don’t have any savings accounts in place for emergencies (or for that matter, retirement).

There are, however, a few tools that can help you keep this vital account in place when you’re tempted by a new TV or vacation.

First, make sure your rainy day fund is accessible – but not too accessible. Dan Andrews, founder of Well Rounded Success, a personal finance consulting firm based in Fort Collins, CO, says a good way to do that is to have it at a different bank from your day-to-day checking and savings accounts. The account should hold money you can access immediately – not funds tied up in stocks, certificates or deposit or retirement accounts. Good places to stash your funds include high yield savings accounts and money market accounts.

How much should you have in a savings account for this purpose?

“I will stipulate that clients have four to six months of cash in their bank account in addiction to whatever I’m managing,” says Chris White, a certified financial adviser and the author of Working with the Emotional Investor. “That makes it less likely they’ll call for distributions at an inopportune time.”

One way to jump start your rainy day fund: when you receive a cash windfall, whether you got a tax refund or you’ve finally paid off a loan and have extra money on hand each month, funnel that into a high interest savings account until it has reached a sufficient level. Keep that four to six months of expense range in mind. Once you’re beyond that goal, you should consider putting the money into a retirement account, such as an IRA, CD, or Money Market account.

If you’re carrying debt, try to get it paid off as quickly as possible. By eliminating interest payments, you’ll reach your savings goals more quickly. And even as you’re paying down that debt, you should put a small amount into the rainy day fund each week or month at the same time to stay in the habit of contributing.

Finally, if you’ve been looking to kick an expensive habit, like smoking or drinking, establishing a high yield savings account can be a good motivation. The national average price for a pack of cigarettes is $6.16. Putting that money from a pack-a-day habit into a rainy day fund would add up to $2,248 per year.

About the Author

Chris Morris regularly contributes to national outlets including Fortune,, Voice of America, Variety, and Common Sense Media, as well as to dozens of other major publications.


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