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How to Build a Rainy Day Fund

How to Build a Rainy Day Fund

While the notion of sweeping hard-earned cash in an emergency savings account on a tight budget may sound trickier than herding a pack of wild cats, the reality of not having one leaves you vulnerable to the common pitfalls of financial ruin.

“I’m in between jobs and trying to stick it out with this new start up company,” admits Jose Martinez of Hollywood, Florida. “But the truth is, I’m behind two months in my rent, I have no savings and I’m maxing out my credit cards to get by. Having some sort of nest egg would have come in handy right now.”

Martinez’s situation is representative of approximately 62% of Americans, who have no “fall back” funds during rough times. When financial publisher Bankrate, conducted its Money Pulse survey at the end of 2014, a mere 38% of respondents reported that they had the funds to cover unexpected expenses such as a trip to the ER, job loss or an auto accident.

Other survey findings included:

"You hate to see so many people who are one relatively modest financial emergency away from a downward spiral," said Claes Bell from Bankrate.

Although the latest survey from was not overly positive, the news is not entirely bleak. Bankrate identified several ways to plant the seed for your rainy day fund and make it grow with little to no financial pain.

Be a Planner

You have to dig into the reality of your finances and come to terms with what you have (or don’t have) in terms of income or assets. Start with a goal in terms of how much money you should have in reserves--most experts suggest having four to seven months worth of expenses. Bankrate talked to Kevin Gallegos, vice president of Freedom Debt Relief, who reminded savers, "Remember, in an emergency, we don't fund vacations, fancy new clothes, dining out or other luxuries.”

Select the Right Account

Your rainy day fund should be an account that is easy to access without being able to make spontaneous withdrawals. The account could be interest accruing but don’t park all of your money in any account or fund that is high risk in an effort to garner a “high reward.” One bad market shift and the dollars you’ve been stashing away could go “poof.”

Instead consider a money market or high rate savings account at your credit union. Rates are strong and most credit unions have fee-free accounts. For instance School Employees Credit Union of Washington ($1 billion, Seattle, WA) offers a savings account that pays a staggering 6% APY when the member makes recurring monthly direct or payroll deduction deposits and receives eStatements.

Pay Yourself First--Every Month

Think of the rainy day fund like a bill you have to pay (but a good one because you are paying yourself). Set up automatic transfer from your checking account to transfer a certain amount of money the rainy day account every month and don’t think about it again.

Have Patience

Unfortunately, building a rainy day fund doesn’t happen overnight (even though you may need it to grow as fast as possible). "Rome wasn't built in a day, and neither is an emergency fund," Gallegos told Bankrate. "Any action you can take to establish an emergency fund will do you good. If you transfer $10 to a savings account each week, you'll have $500 in a year."

Also, you can pad your fund by adding extra money, such as tax returns, commission checks and even financial gifts to your rainy day fund instead of spending them.

"Save rather than blow your excess money," Gallegos says. "By stashing the extra, in addition to your regular predetermined amount from your budget, you'll see your savings soar."

Look for Credit Union Sweepstakes and Giveaways

While not a traditional way to save money, you can also stay on top of credit union giveaways to save money. For example, to celebrate its 80’s anniversary, GTE Financial ($1.7 billion, Tampa, FL) is paying 80 months of one member’s mortgage or rent, up to $160,000. The giveaway, Home Free with GTE is the largest giveaway by the credit union to date.

“We want to highlight our 80th anniversary celebration by thanking our members for their loyalty and trust throughout the years with a giveaway that can truly change a member’s life,” said Joe Brancucci, president and CEO of GTE Financial in a press release. “The Home Free with GTE contest emphasizes our belief in homeownership and also the spirit of giving back.”

The credit union began accepting mortgage contest entries on June 1, which runs through the middle of August.

Ideal Credit Union ($602 million, Woodbury, MN) is also giving away some nice prizes, in the form of cold hard cash. Set for August 10-14, the credit union is inviting the community to stop by its branches to enjoy a hot dog and obtain a free sample from the vault. The serial number on that free sample could be the ticket to winning $1,000 in one of the credit union’s daily giveaways.  

By Gina Ragusa
Published August 19, 2015
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