I know the term “rainy day fund” is just supposed to be a cutesy way to refer to emergency funds but I think the wording highlights two of the biggest problems with emergency fund management: raiding the emergency fund too frequently and having vague funds without a clear purpose or “why” behind them.
1. Raiding emergency funds too frequently
With family, friends and my personal finance coaching clients, I see a pattern all the time where people save a little money for “emergencies” but then need to raid it because they failed to save money for regular, non-emergency expenses like Christmas/holiday spending, car/home maintenance and trips (during non-covid times).
Generally caused by carrying too little cash in their checking account, they often say that they are fine using the “rainy day” money on those things even though that leaves them unprepared for actual life or death emergencies for themselves and their loved ones.
After all, I started this blog after talking to a co-worker who didn’t have $600 to fly to the east coast to say goodbye to her dying mother.
The truth is, it rains all the time…
Depending on where you live there may be between 31 and 233 days of precipitation per year (in the U.S.).
Is this how many days you should be accessing your emergency funds?
I don’t think so.
Even when I have an emergency, I try to pay for the expense out of our regular income by moving budget dollars around, sending less money to investments, or selling crap. Raiding the emergency fund should be a last ditch solution after all other money has been exhausted. We need FEWER excuses to touch that money, not more.
Triggered
Getting near to the point of needing to access your emergency fund should set off a series of triggers. I know it is difficult to face these questions when you are already stressed out about the emergency it’s self, PLUS the associated money problems but I’ve found that these are the times that real decisions get made. They are sometimes the only times that we are motivated enough to take the actions required to actually improve our financial situation once and for all.
Before you pull money from your emergency funds you should be asking questions like:
-What else could I do to come up with this money?
-Is the life I built unsustainable? Do I need to make a dramatic shift with my career and/or spending so that I can afford to cover basic emergencies?
-Does this scenario match the INTENTION that I had when I decided to save this money?
2. Vague Emergency Funds
What is a “rainy day”?
People need to be putting more “why” and purpose behind their emergency funds, not less. I’m much less likely to save and keep money for emergencies if it is for a vague purpose like “rainy days” compared to identifying specific scenarios like “I need to have enough money to go to Finland if my brother who lives there has an emergency”.
In order to save and keep emergency funds, you have to establish and keep boundaries with yourself. If you establish a vague or weak boundary and just say it’s for “rainy days” it’s going to be much harder to keep that money for real emergencies.
My big 5 emergency funds
I’ve written extensively about the 5 funds I keep HERE.
By separating your emergency funds into the 5 types (or however many you want), you are identifying the boundaries for which you will and will NOT allow yourself to use each and every one of those dollars.
Rain is a poor reason to raid your hard earned and hard saved savings. Catastrophic flooding that displaces you from your home would be a better reason.
Emergency funds for your emergency funds
I like to think of my different funds as moats; moats that are adding radiating layers of protection to each other. This is the only way that I have found to actually protect myself financially from these stressful situations.
If you wanted to have a “Rainy Day” fund to add a layer of protection for your actual emergency funds, than that seems reasonable to me.
But don’t have only one emergency fund and then go around telling yourself you can access it any time it rains…cause it is going to rain.