What actually is a ‘rainy day fund’

[iceyice]

I’ve got an “emergency fund”

I am also monthly adding a small amount to a general
savings accounts not really sure what for. I guess this is a rainy day fund?

What is everyone’s understanding of a rainy day fund? How much are you aiming to get it to. What is it actually for?!

An emergency fund is for major events like redundancy or serious illness - it should be at least 3-6 month's living expenses.

A rainy day fund is for smaller expenses like your washing machine breaking or needing a new tyre.

Keeping the funds separate means you don't eat into your emergency savings when those inevitable 'rainy day' expenses come up.

I’d say it is the other way round. Emergency is the boiler going bang. Rainy day is redundancy.

People use different language / terms, or names for their 'pots of money' in some accounts. It doesn't really matter what you call them.
Some people have one pot for all savings.
It doesn't really matter.

To some extent it depends how your mind works. Some people happy with one pot, some people like to see things separated out.

For me, a 'rainy day fund' suggests some money set aside for when you have a run of expenses that can't be met from your normal monthly budget - like when the fridge breaks or you have a particularly expensive car repair or a roof starts leaking in a storm. Money to stop your life falling apart when an unexpected expense crops up.

I agree that what people call it isn't important, what does matter is that you try run your finances further ahead than payday to payday and recognise that there are ups and downs in income and expenses that you should try and anticipate, such as:

insurance, Christmas, holidays, school shoes and uniforms etc etc
things that break, eg cars, appliances, teeth, pets etc
loss of income due to illness, redundancy, desire to stop working or reduce hours/level of job
savings to support DC at university or house deposits if applicable
big costs like home improvement or car replacement, which you should aim to cover by saving not borrowing where possible or if you do borrow, should be as small/affordable as possible, ie don't take out a £500 pm car lease if you have no emergency fund or would be screwed if you lost an income.

So you need to plan for all the above out of monthly income and ensure you don't see what comes in each month as available to spend by the next payday.

Of course, you could come to a point where you have plenty of money saved and then you can think about retiring/spending more/working less. Obviously many people want to pass on money to their children but there's also a school of thought about 'die with zero', ie aim for your money to last until the end of your life but not have loads left over because you've saved or done without for no direct benefit to yourself.

I don't think there's a single answer. As pps have said, it's recommended to have at least 3 months' salary in savings. You might want to think about -

• pot for emergencies - boiler/washing machine/car repairs, that kind of thing
• pot to help in case of potential redundancy (3 months salary)
• pot to save for foreseeable expenses (holidays, Christmas, new car etc.)
• pot for your long-term savings, e.g. to use in retirement/leave as an inheritance

I would decide how much you want in each one and set them up in the order I've given above (short to long term priority) if you haven't already.

Its 3-6 months of expenses and its for in case you lose your job or have a big unexpected bill

For me , anything which is essentially ‘liquid’ in a no notice savings account is emergency fund. I would say that’s 3-6 months income.

Rainy day fund could be this, or could be something in a notice savings account , which I am putting away for something catastrophic ( to me) such as a serious illness of myself or spouse, or an unexpected roofing issue.

But as ever, people can only save what they can afford to save, and what it’s called means little .

Rainy day is to indicate a long time without the usual income though. Ie the rain has meant the harvest hasn’t flourished so I see ‘rainy day’ as a large amount of money to cover a year. Enough money for a washing machine isn’t a rainy day fund, it’s to replace a sudden loss of annual income.

Rainy day is to indicate a long time without the usual income though. Ie the rain has meant the harvest hasn’t flourished so I see ‘rainy day’ as a large amount of money to cover a year. Enough money for a washing machine isn’t a rainy day fund, it’s to replace a sudden loss of annual income.

My savings pots:

From salary - Basic expenses and bills, everyday luxuries and treats,
plus easy access cash savings for rolling annual expenses such as insurance.

Emergency Fund (cash savings with limited access when needed) - unforeseen expenses, eg: house gets flooded and need to move out for a few weeks or months.

Mid term savings (restricted cash savings for higher rate)- to fund larger predictable expenses: holiday, car or house repairs, a replacement car, and longer term maintenance issues, new kitchen/bathroom or a new roof, (house deposit if required).

Rainy Day Fund (cash savings - limited access for higher rate) for a significant amount of off time of work for illness or redundancy to replace basic income for several months or a year or two.

Long term investments with tax advantages - to create a long term replacement income into the future - pensions and S&S ISAs.

I'm a lone parent on a low income. I've always maintained a strict savings regime and never relied on debt, other than a mortgage.

I think people should have a sunny day fund too, for those little things that make the day a bit brighter.

To me a rainy day fund is the first lot of savings when you cant afford much. You put a bit away for the fridge or washing machine breaking. When you can save a bit more you have a fund for redundancy. Then you move on to saving for the luxuries like holidays or a car or supporting your child through uni.

I grew up with parents whose ethos was to 'put something away for a rainy day'. Basically it is just a savings pot you can use if something bad happens or you have to pay a large unexpected bill.

Outside of MN, I don't think most families (or individuals) are able to afford to have a whole year's income just sat there doing nothing 'in case'.

To me, a 'rainy day' is a rubbish day - so exactly the day when you get a puncture, or your fridge conks out. Then, if you are lucky enough to have been able to afford to save "for a rainy day" then you can replace them straight away, out of those savings.

Lovely to aim for the kind of savings you are talking about, but not a realistic goal for most.

It's something to aim for that would provide a very secure financial footing and some people prefer to prioritise that. If it's a couple, then 6 months savings each of basic essential living expenses isn't unrealistic in the medium term.

My 'emergency fund' was to ensure I never ended up alone with no money (first ex). I had 50k in it by the time 2 ex left. 10 and 12 years. Not married.

I've never really thought about any other pots of money.

Different people call them different things and personal circumstances dictate how much you may want to keep in each one.

Personally, I gave up on separate funds a couple of decades ago as I realised that if one "pot" ran out I was probably just going to borrow from another.

We now have two distinct funds. Investments/savings which are locked-in and would only give immediate access with a penalty but we have no need to access this money.
Immediate access funds (kept in PB's) which while giving a return, will allow practically immediate access (3-days) and cover ANY bills not covered out of our current account.