Por Tanya Menendez
Marzo 13, 2019

Tanya Menendez is the Co-founder and CEO of Snowball, an online platform that helps you tackle debt and investing through free personalized recommendations and affordable coaching. Menendez co-founded Maker's Row, an online marketplace that helps democratize American manufacturing for small businesses. Menendez has been included in Forbes' 30 Under 30 List and named one of People en Español's Most Powerful Latinas. You can follow Tanya @makertanya and Snowball @asksnowball.

More than 46 percent of millennials have $0 saved. Having an emergency fund is one of the easiest ways to reduce your financial anxiety. An emergency fund is a must-have for any unexpected expenses that come up — after all, life happens and you just can't anticipate everything.

What Is a Rainy Day Fund?

A rainy day fund is money you have set aside (in a bank account) to cover any unexpected expenses that come up — it's an emergency fund. This can include anything from short-term unemployment or emergency situations, such as an ER visit or your car breaking down.

You should set up this fund before any other types of savings (e.g., retirement, college, downpayment of a home). It can protect you if you lose your income and prevent you from taking on high-interest debt (loans or credit cards), losing your housing, or going into bankruptcy. Especially if you have debt, the best way to get out of it is to prevent yourself from going further into debt.

How Much Money You Should Have in Your Rainy Day Fund?

It's recommended to have up to 6 months in living expenses. Of course, 6 months can be daunting and the important thing is taking the first step — we recommend that even saving as little as $500 can benefit you. Start with $500 and then work your way up to $1,000, then $5,000.

Put Your Rainy Day Fund into a High-Yield Savings

You need to put your emergency fund in an account you can easily access, in case crisis strikes. A “high-yield savings account” is a good idea, this is just an account that gives you a higher interest rate. A high-yield account can help you earn interest, it's federally insured up to $250,000, and you can access your money when you need it (versus a CD account where you have to pay to take out any money). It's a good idea to have a separate account for your rainy day fund and any savings above that, so you won't touch this money unless necessary.

Here is a list of high-interest savings accounts.

When Can I Use a Rainy Day Fund?

Remember that a rainy day fund is for exactly that — something that is not fun and messes up your plans. A “rainy day” or emergency is usually something that affects your health or ability to earn money.

What are some good examples of times you would use a rainy day fund?

  • You have to go to the emergency room and your insurance doesn't cover it
  • Your car breaks down and needs a new part
  • You need to evacuate for a natural disaster and need to buy supplies or pay for a hotel room
  • You lose your job and need to pay rent

What wouldn't you use your rainy day fund for?

  • Everyday expenses like going out to eat or car insurance.
  • A big trip. If you want to save to travel, you should have a separate travel fund.
  • Birthdays that come up or anniversary gifts
  • Lending money or buying a gift for a friend who needs it
  • Down payment for a home

How Do I Start Contributing to an Emergency Fund?

  • Create a monthly savings goal — automatically transfer funds to your savings account each month. This can be as low as $20, but will get you in the habit of saving.
  • Take a look at your budget — you can find extra money by seeing where you can trim expenses (see creating a budget like a boss post here).
  • Get extra income — if you think this is doable, see where else you can get some extra money. This can include a second job (check out this list of side hustles) or selling items like clothes.
  • Save any large cash payments — if you get a tax refund or work bonus, automatically put aside a certain percentage towards your savings.