Saving For a Rainy Day

01 Sep 2021

While COVID-19 will (hopefully) be a once-in-a-lifetime pandemic, it has sufficiently demonstrated how unexpected events can upend otherwise stable incomes. We may be steadily finding ways to return to everyday life, but it is important to consider what lessons we can take away from this unprecedented global disaster.

Those hit hardest by the pandemic were those wholly unprepared for a sudden change in income. In what felt like an instant, millions of people found themselves unemployed as their businesses shuttered. Applying for a new job is already stressful — doing so with the world in chaos and the clock ticking on unpaid bills is an absolute nightmare.

However, individuals with “rainy day funds” had at least some cushion to fall back on. A rainy day fund is a form of savings that goes untouched unless an emergency occurs. Unlike typical savings accounts, which allocate most of the money toward long-term investments, rainy day funds are meant to be available for immediate discretionary spending.

The oft-cited rule of thumb is to have somewhere between three-to-six months of one’s monthly expenses tucked away in the rainy-day fund. If, for instance, one’s monthly expenditures total €2,000, a rainy-day fund would ideally contain somewhere between €6,000 and €12,000.

Of course, most people don’t have that sort of cash lying around — if they did, the fund wouldn’t even be necessary — so most need to save up that income. And for many, adding yet another expense can seem like an unnecessary expense.

However, the pandemic has shown us that these emergencies will happen. The next one may not be on the scale of COVID-19, but a broken-down car or burst pipe are everyday emergencies that need to be resolved as soon as possible.

If you are interested in building your own rainy day fund, check out our LifeGoals tool to help get you started.