You have planned a day of fun outing with friends and family, while you have just started to enjoy, it starts to rain cats and dogs. If you are prepared for the downpour, then you will have an umbrella, raincoat or an alternative plan and that saves the day. In the same way, you have a well planned budget for your savings and expenses and then an unexpected expense will send your planning plummeting. This is when your rainy day funds will come handy.

What is a Rainy Day Fund?

Rainy day funds are funds that you have set aside to meet unexpected expenses that may occur outside of your normal expenses. It is similar to an emergency fund, but meant for smaller expenses, whereas emergency fund is reserved for major expenses. It is necessary that you maintain both an emergency fund and a rainy day fund to meet emergencies.

How to save for a Rainy Day Fund?

Saving for a rainy day fund is rather simple; here are a few suggestions –

1. Include your Rainy Day Fund in your Budget – Including the rainy day fund in your budget will make it easier to start saving for it. Think of ways where you can cut back on expenses to build this fund and also how soon you want to build this fund is also a factor to the amount you will be contributing to this fund.
2. Treat the savings like a bill – Contribute to your savings just like how you would pay a bill, with the same commitment. One way to ensure that you don’t forget or skip contributing to your savings is by automating it. Save first, spend later is the mantra to follow, when you save first, you learn to live on less, on what is remaining after saving.
3. Dedicated and Easily accessible account – Open a dedicated account like, fixed deposits or mutual funds, which are easily accessible and can be liquidated at the earliest. But at the same time, the money should be kept out of sight, so that you are not tempted to withdraw when you are short on funds for your day to day expenses.
4. Cultivate the habit of saving and consistency – When saving becomes a habit, it is less painful and requires minimum effort. For example, you can decide to dine out just twice or thrice a month instead of say six and contribute that money to your savings. This way you are increasing your savings without much effort. It is the habit and consistency that matter more than the amount.
5. Start small and build on it – As the saying goes, “Every drop of water makes a mighty ocean.” So, even if your contribution is not too much at the moment, it will help you to start the fund and build it. Ramp up the contribution when you earn a raise or change a job with a better salary.