Women & Finance: The Importance of a Rainy Day Fund

Your insurance agent, banker, and financial planner are likely to deliver some version of “rainy day” advice to clients. Bankers may advise small business owners to maintain an open line of credit; insurance agents may recommend insuring against a catastrophic event, and financial planners may suggest squirreling away cash for that rainy day fund.

Many Americans are not prepared for an unexpected medical or financial emergency. In a 2021 survey conducted by Bankrate, 25% of respondents indicated they have no emergency savings. Twenty-six percent of respondents reported having some emergency savings (but not enough to cover living expenses for three to six months).

So where does one begin? This daunting task might be best approached by breaking it down into bite-sized goals. Instead of thinking about saving three to six months of living expenses for your emergency fund, think of working towards a more practical goal. After all, how do you eat an elephant? One bite at a time!

Top 5 Tips for Building Your Rainy Day Fund

• Have clear and achievable goals. Start small and set aside a portion of your paycheck monthly.
• Try to stay in or socialize with friends at least once a month at home – maybe plan a monthly movie night or book club instead of dining out at an expensive restaurant.
• Transfer gifts, bonuses, tax refunds, and pay raises into savings as soon as you receive them. If you receive a raise, pretend it never happened! Put the difference in pay into another account using automated transfers to a savings account.
• Pick hobbies and activities that are low cost – Think hiking rather than skiing!
• Ditch your coffee habit and consider replacing a less expensive at-home version of your favorite brew. Even if you purchase more expensive beans or brewing equipment, you are likely to spend less than you were on that $5 latte.

Re-allocate Funds to Meet Your Goals

Maybe you are someone who maximizes the pre-tax contribution to your 401(k) but doesn’t leave enough behind for emergency savings. Maybe you are a high earner who doesn’t feel like a high earner due to childcare expenses, lawn care, car payments, and maybe even a little bit of “keeping up with Joneses.” If your earnings cover these monthly expenses, it does not negate the need for having a rainy-day fund.

If this is you, try to temporarily reduce your cash outflows in other ways. Take a break from your lawn or housekeeping services for a season. You might also temporarily reduce contributions to retirement accounts, education savings plans, or other longer-term savings accounts in order to free up cash flow for your emergency fund. If you participate in an employer sponsored plan such as a 401k, try to save at least enough to receive any matching funds provided by your employer. As soon as you achieve your goal, remember to increase your contributions to the accounts above.

The Bottom Line

Talking with clients about saving for a rainy day may seem obvious and borderline uninteresting, but that doesn’t mean it isn’t good advice. Often, “simple in theory” doesn’t mean “easy to execute.” At the root of the recommendations outlined above lies an uncomfortable truth: You must exhibit discipline in order to achieve your goals. And if you do not have the desire to act on these common pieces of advice today, you are most likely going to find yourself in a much worse financial situation in years to come.

About the Author: Jackie Fontana, CFP®
Over the past 15 years, Jackie has enjoyed a diverse global career in financial services and business development. Jackie’s primary focus is helping her clients grow their assets so they can live their best lives while they plan to achieve crucial life goals, such as education and retirement funding, or planning life’s adventures.
Jackie began her career in private wealth management, serving with Sanford Bernstein and Deutsche Bank in the Los Angeles area. This was followed by a successful stint in Melbourne, Australia working in executive recruitment for Robert Half International. Most recently, Jackie served with the Institute of International Finance, managing key relationships with prominent senior banking executives across Europe and Asia.
Jackie is a Certified Financial Planner™ practitioner and holds a Bachelor of Arts Degree from the University of California Davis, and a Master’s of Arts in International Affairs from American University. Jackie and her husband Eric have three boys and reside in Darnestown, Maryland. Outside of work, Jackie is an outdoor enthusiast who is passionate about travel and cheering for her boys at swim meets.

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