What is a Rainy Day Fund?
The main purpose of a Rainy Day Fund is to cover one-off unexpected expenses. For example, replacing your car tyres or paying for a school trip. There’s lots of hints and tips online about how to build a Rainy Day Fund, however, having a realistic monthly budget, and sticking to it, is a good start. And, before you ask, there’s not a magic figure that’s right for everyone.
Is a Rainy-Day Fund the same as an Emergency Fund?
Yes and no. Sometimes the terms are interchangeable, but there can be subtle differences. The textbook answer will say an Emergency Funds should cover 3 to 6 months’ worth of living expenses i.e., mortgage/rent, food, utilities, etc. – this could be because of a redundancy, for example.
3 to 6 months’ worth of living expenses will probably seem a lot to most people. However, I’d bet my bottom dollar that people with an Emergency Fund will feel more financially secure.