Rain, Rain, Go Away

Even if you live in the sunniest, most pleasant place on earth, you still need a rainy day fund.  Unlike the weather, there is no way to predict when you might get into a car accident or fall ill or become unemployed.

Many people, however, find it hard to start saving.  It is might be because they have to live paycheck to paycheck or because for the first time they are enjoying having disposable income and would like to spend more of it on things they couldn’t before.  But the notion that saving is a burden that makes a tight budget even tighter or that cuts into the fun parts of our lives is false.  In fact, saving can be painless and effortless.  Take for example this tip I learned from Mellody Hobson, Good Morning America contributor and President of Ariel Investments.  On the ABC special Un-Broke: What You Need to Know About Money, she challenged everyone in the audience to start saving  $1 a day for 4 months, then $2 a day for another 4 months, and finally $5 a day for another 4 months.  In a year’s time, each person will have $1,000 in his/her savings account.  (This would be a great New Year’s resolution, by the way.)

If you think you will still succumb to temptation and spend the $30, $60, or $150 you should be putting aside each month, then try to have the amount automatically deducted from your paycheck and directly deposited into your savings account.  It is much easier to have less to spend to begin with than to have to hold back and put aside the money later.

Finally, the rainy day fund is not a marriage, so it doesn’t have to be forever.  I recommend having at least enough money to cover 6 to 9 months of living expenses saved up (because it takes about 6-9 months to find a new job during times of recession).  Should you ever have to dip into your rainy day fund, just replenish it afterwards.  Otherwise, it is a much better use of your money to save it towards retirement or a down payment for a home.  Ultimately though, even in the most robust economies, no one is immune to financial hardship, which is why everyone should have a rainy day fund.

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