Many people feel they do not need a rainy day fund at all. Yet every year hundreds of thousands of Americans end of facing financial hardship when in fact having a rainy day found would have kept them afloat. Saving money can be difficult but saving for emergencies is a must for any adult in today’s society. Those without a rainy day fund that face a sudden disaster can end up with their bank accounts and retirement accounts drained and rack up a massive amount of debt or worse yet lose their home and security. Sadly roughly only 35% of Americans today have set aside a rainy day fund, leaving 65% of today’s Americans without this vital safety net in place.
There are many factors to consider when deciding if you need a rainy day fund. The most sound financial advice is that everyone needs to have a rainy day fund put aside, but for those who balk at the idea of saving for one lets discuss the following points. Do you have private disability insurance already? If you do have a private disability policy do you know its terms and conditions? Most private disability insurance policies will only begin to pay out after you have been disabled for 3 to 6 months for example, very few policies kick in within a month. If so how will you cover your basic living expenses during this time? Do you have private mortgage insurance should you lose your job? How likely is it that you will face the loss of your job? How long will it take you to find a new job should you indeed lose your job? If you are an older person or even middle aged getting a new job could be harder for you than a younger person as even though age discrimination is illegal it is very much rampant in America today.
Unemployment insurance can only be counted in cases where you qualify for it, and in many cases people in fact do not qualify for it. Also unemployment insurance only covers a small part of your hourly wage or salary, can you make up the difference should you indeed lose your job? Some people think banking away their vacation time will be their emergency nest egg in the case of sickness or losing there job but companies are not required to payout any remaining vacation time that an employee has accrued. If you are sick for an extended period or lose your job just how far will that banked vacation time take you? Thinking of your Roth IRA/401ks as a safety net? That is a very bad idea as one long bout of unemployment or a major medical issue could wipe that account out or drain its value considerably.
So yes likely you will need a rainy day fund at some point in your life. Disasters happen and while we would like to think they will never happen to us they happen every day throughout the country, every day someone ends up without income. Saving for a rainy day fund does not need to be hard. You can start your target goal small, say 3 months of living expenses banked. You can do it slowly by saving ones months pay per year, within 6 years you will have 6 months of living expenses saved. Be sure to read our next article in the series ” Rainy Day Funds And Investing “.
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