At this time of year it is a good idea to prepare for rainy days. That’s not just the wet stuff! Rainy days cause problems with our financial affairs as well, hence the old adage about saving for a rainy day. These days we are ever conscious about insulating our homes and putting in efficient heating and ventilation systems so we stay warm and dry through the coldest and wettest times. These measures can cost thousands of dollars, yet rainy day funds are often neglected. Protecting ourselves from harsh financial conditions is just as important as protecting our home environment.
A rainy day fund needs to be big enough to cover unexpected expenses. It is not based on your income, it is based on your outgoings. As everybody’s situation is different, the amount you need to have on hand will depend on your personal circumstances. You will need a larger amount if you have a big mortgage, no income protection or health insurance, poor health or assets (such as your house or car) which need maintenance or replacement. When money is in short supply it is hard not to live from pay day to pay day. However, having no savings is just like being out in winter weather with no raincoat and a very high chance of rain. Without savings, a credit card becomes the means of getting by, and with interest rates around the 20% mark, this becomes very expensive. Minimum payments are required each month which further stretch the budget.
If you have a mortgage, rainy day savings can be kept in either a mortgage offset account or a line of credit to keep your mortgage interest payments down. If you have no mortgage, keep your funds in a high interest call account or a short term deposit.