Published: 08/11/2021

Rainy day funds

Life’s full of surprises. Sometimes expensive. Having some money tucked away can help you feel more secure and in control. Here we look at the what and why of ‘rainy-day’ funds.

A rainy-day fund is money you’ve saved to cover unexpected financial emergencies, such as your car breaking down, a family illness, or a sudden change in income. Non-emergencies are things like holidays, celebrations and things that are planned for.

Try to separate emergencies from normal spending. It makes it a lot easier save when you’re not dipping into your emergency funds for things that don’t need paying.

How much should you be saving?

The amount you need to save will depend on your circumstances, but Money Helper suggests three months of your usual expenses.

It’s easier to achieve smaller targets that’ll encourage you to save more when you see how well you do. So….start small!

Here are a few ways you can keep building your pot when you’ve started.

Review your spending

Understanding your money could help make saving easier. A good way to do this is to work out how much you earn, spend and how much you’ve left over monthly using a budget planner. If you’ve not much left over, look at your spending, and see what changes you can make.

If you need help getting your household finances in shape, contact an expert. The Financial Conduct Authority provides tips on how to find a qualified independent financial adviser.

When saving, every little helps. Whether it’s change from breaking into notes, or change from your daily coffee, it pays to save.

There are apps that round up your online purchases to the nearest pound and put the difference into a savings pot. So, if you spend £3.70, these apps will charge your account £4 and put the 30p difference into another account or separate savings pot.

Set a budget

Budgeting helps you feel in control motivating you to save. When you know how much money you need to cover your costs and how much you can afford to save, set yourself a realistic budget.

Create a savings goal

Apps can help you create your goal and save through online monitoring. There are a number to choose from.  

Separate your savings

Keep your funds separate to help by stopping you spending the money you could save while making it easier to track your progress.

Automatically transfer money to your savings

Set up a standing order, (regular payment), that will transfer money automatically to another account (such as your savings account) on the same day each month. You can transfer between accounts with the same bank or from one bank to another.

Earn rewards

You may be able to save some money through loyalty rewards or collecting points if there are stores you shop at regularly. Collecting points is easy and it means you can put the money you save into your rainy-day pot. Check when your points expire so you don’t miss out.

Save your windfalls 

Sometimes, you may get a lump sum of some sort. Maybe a tax refund, bonus or an unexpected reward. It can be tempting to spend it but the more you can put away, the better.

So, unless you’ve got more important things to cover, like paying off debt, putting most, if not all, of a pay-out away is a great way to give your savings pot a boost.

Press the stop button if you need to

You might not always be able to save the same amount each month because life’s unpredictable. If a life event affects your income or your circumstances change, you can always reduce how much you save and increase again when your finances are back on track.