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You may have heard the term “rainy day fund” before. But what is it, why is it so important and how do you start one in your 20s?!

A rainy day fund is similar to emergency savings. It’s an account that you save money into and don’t touch until you have something unexpected come up that you can’t afford.

This fund is typically smaller than an emergency fund, something like $1-$2,000, and it’s important to have for when those small unexpected life events pop up, like for example a flat tire, a trip to the doctor weren’t expecting, or anything like that.

If you’re in your 20s and don’t have much saved away, or anything at all, it can be stressful when things you can’t afford pop up and that may lead to credit card debt that you’ll eventually have to pay off.

Why having a rainy day fund is crucial in your 20s

So, having a rainy day fund is crucial in your 20s for a lot of reasons:

1. For emergencies

Like we just talked about. A bill you weren’t expecting, a flat tire, or any other relatively small expense.

2. Financial stability

Something that is super important at any time in your life is being financially stable.

This takes out a lot of stress in your life if you’re prepared for something unexpected down the line.

Because as we learn really quickly in our 20s, life has a way of throwing curveballs at us. So it’s not really a matter of “if” something pops up but “when”.

So a rainy day fund is crucial to help you stay out of debt with credit card companies that will charge you high-interest rates until you pay it off.

3. Savings grow over time

The more you save now, the better off you’ll be later.

You’ll be setting yourself up for longer-term savings goals like buying a home or saving for retirement.

Even if all you can manage is $20 for every check right now, that will still compound and grow over time!

And it will teach you good money-spending and saving habits so that you don’t overspend what you’re making each month.

One of the most crucial life skills to have and start developing in your 20s is good saving and spending habits. That’s going to set you up for an easier and brighter future!

Rainy Day Fund: What it is and Why it's Crucial to have in your 20's

How to start building a rainy day fund in your 20s

Now that you know why you should start saving for a rainy day fund, the question becomes where do you even start?!

If you never really learned how to save, it can seem daunting just getting started. So let’s break it down.

1. Create a budget

The first thing you really need to do is create a budget.

You have to see how much money you have to work with after all your bills come out before you can come up with what you can save.

Start with writing down all your bills. Rent, groceries, phone bill… all the things that are necessary for you to get through the month.

Then you can take how much you’re making a month, subtract it from your bills and see what you’re left with.

If there’s enough left over, give yourself some extra spending cash too!

Because when you’re creating a budget, you don’t need to cut out all of the fun things you do in your life just to make sure you’re saving money.

For example, going out to eat, going on dates, or clothes shopping.

Sure, if you’re spending an ungodly amount on those things, you may need to cut back, but you may not need to cut them out completely!

If you want a more in-depth look at creating a budget, check out this blog post here!

2. Determine your goal

But once you have a budget, you can figure out what’s left over to save from there and determine your goal of what you want to hit in your savings.

What is a realistic goal you can hit by the end of the year?

Or maybe you’d like to set a 6-month goal and even a 3-month goal in order to better track your progress.

It’s all up to how you want to track things, and how much you have left over after your living expenses. That will determine your overall goal.

And you don’t have to stress about this or feel like you need to create some lofty goal that you don’t have a chance at hitting.

You may need to start small because beginning to control your finances includes lifestyle and habit changes. This likely isn’t something that is going to happen overnight!

If you look at all your expenses and realize you aren’t even making ends meet as it is, you may need to pick up more hours at work or start a side hustle like DoorDash.

Maybe you need to significantly cut out the number of times you go out to dinner and be smarter about meal planning and prepping at home so you’ll be more likely to cook there.

It’s a mindset and a lifestyle shift when you decide to master your finances, so don’t be hard on yourself and take it one day at a time!

3. Open a savings account

If you don’t even have a savings account to start with, it’s a good idea to open one! You want to keep your rainy day fund out of the account your bills come out of.

Chances are you have a checking account with a bank and that’s where your bills or money comes out of.

So it’ll be easy to go to the bank you’re already with and open a savings account through them.

If you keep all your “savings” in the checking account you use all the time, that can lead to overspending because you may think you have more money than you actually do, so it’s best to keep them separate!

But, most banks have a minimum amount you need to open an account, so make sure you ask questions when you open a new savings account.

Things you want to know are;

  • How much do I need to open the account, and keep it open?
  • Are there any fees for dipping below a certain amount?
  • And if you’re a student at college, some banks will waive all of their fees for you so make sure to ask about that if it applies to you!

Every bank is different so make sure you find one that fits you and your lifestyle!

4. Automate your savings for your rainy day fund

The next step you may want to take is to automate your savings for your rainy-day fund.

Chances are, if you have direct deposit from your work, you should have the ability to add a second account and determine how much of each check you want to deposit into your savings.

Of course, this may not be an option for every workplace but it’s likely to be possible for you.

This is the best option because you won’t have to worry about trying to remember to save, it will just happen automatically.

You also won’t accidentally overspend before you deposit into your savings.

If this isn’t an option, then I suggest setting a reminder on your phone for every single payday to make sure you stick to your savings plan yourself!

5. Track your progress

And don’t forget to track your progress! The most exciting part of savings is watching it grow week after week!

Sure, it’s going to be slow at first. Especially if you’re pretty much starting at zero, but it will slowly start to make a difference!

And if you want an easy way to keep track of all your bills, expenses, and savings, check out the budget tracker I have available in my shop!

This spreadsheet is designed to help you get control of your finances! There are places to help you keep track of your income, expenses, savings, debt, and more!

I offer an option for both single households and couples as well.

6. Avoid dipping into your rainy day fund

By far the most important part of the process though is to avoid dipping into your rainy day fund unless you need to.

It can be tempting to dip into the fund when you start getting a decent amount of cash in there for non-emergency situations, but the gorgeous dress you see at the mall that you absolutely NEED TO HAVE is not one of those situations.

The more you save and avoid touching your rainy day fund, the better because then you can start to diversify your savings and grow it into an emergency fund!

Which is equally as important, and different than what we just talked about.

If you want to learn about the differences, check out this blog post here: Rainy Day Fund vs. an Emergency Fund.

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