The Rainy Day Fund can help you budget for unexpected expenses like losing your job or a collapsed roof.
Savings expert Anna Bowes reveals how much you should keep and where.
There are many reasons to save money.
You can put money aside if you want to save up for a vacation or buy a new car as well as pay off your wedding or mortgage deposit.
There are also longer-term reasons to save, such as putting money into a pension so you have a retirement pot for your golden years.
But savings experts say you also need to be prepared for the unexpected when your finances are in a rainy day.
This can help cover emergencies or unexpected expenses, such as if you lose your job so you can still pay the bills while looking for a new job.
It can also help repair your car if you’ve been in an accident and can’t wait for your insurance payout, or if your car’s MOT is more expensive than usual.
You need to make sure you have enough in your emergency tank to cover the cost.
Otherwise, you could eat into your budget and expenses with bills and daily expenses.
It’s important to write off any debt before you start putting loads of savings aside, or interest rates will increase if you fall behind.
Prioritizing paying off large debts first can also leave more money in the future for savings.
How much should you put into your rainy day fund?
Bowes, co-founder of comparison site Savings Champion, suggests keeping the equivalent of three months’ paycheck into your rainy day fund.
So if your salary is £2,000 after tax per month, Bowes suggests having a rainy day fund of £6,000.
“The general consensus is that you should keep the equivalent of at least three months of your paycheck home in case of an unplanned emergency,” says Bowes.
“For example, what if you suddenly lose your income, or you need to fix your car?
“Of course, you usually can’t do this overnight, which is why you should get into the habit of saving as soon as possible.”
Where to put money for your rainy day
Bowes adds that it’s important to keep this separate from your regular account so you’re not tempted to spend it, and recommends putting your rainy day funds in an easy-to-access account.
She suggests figuring out how much you can save each week or month and setting up a steady order to automatically move your money to another account.
Make sure you also factor in how much money you need to pay bills like credit cards and other large debts so that you have enough money to cover it up front and don’t fall into further jeopardy.
“It would be easy to spend all of your income each month if you didn’t do this,” explains Bowes.
“If you set up a standing order to move this cash from your current account to your savings account every time you get paid, it can look like another bill you have to budget for, but a bill that you will benefit from in the future.
“If you don’t need urgent expenses, you can simply treat yourself.”
Keeping your money in an easily accessible account means it remains separate, some interest can be earned, and the money can be withdrawn quickly if needed.
You can use comparison sites like Savings Champion, Moneyfacts and Compare The Market to find the best savings.
Savers can currently get 0.67% interest on a Shawbrook Bank easy access account but you need £1,000 to open it.
Alternatively you can open an easy access account at Atom Bank for just £1, earning 0.65%.
Regular savings accounts may pay higher interest and allow withdrawals, but often have restrictions on how much you can deposit each month.
Saffron Building Society currently has a regular savings rate of 1.75% but the maximum monthly contribution is £50.
Alternatively, you can deposit up to £500 per month into the Coventry Building Society regular saver and earn 1.05%.
“When you’re starting out, the act of saving cash is the most important factor because the interest earned will be small, but as your savings grow, make sure you find the right account,” says Bowes. merge with its needs, paying the highest interest rates, as this will add a very welcome cherry at the top.”
We looked at how invest £78 a month can make you a millionaire by the time you retire.
See how you can save £4,500 this month.
https://www.thesun.co.uk/money/17399951/how-big-your-rainy-day-fund-needs-to-be/ I’m a savings expert and this is what your rainy day fund really needs