A: Many financial planners suggest having an emergency account, with enough money to cover at least three months’ worth of fixed expenses. This emergency account becomes your savings for a rainy day fund. If anything should happen to knock you off your feet, you do not want to be forced to sell your house, car or other assets. If something does happen, it is easy to stop your variable spending, such as not buying new clothes and no social spending.
What you can’t easily do is stop your fixed costs, such as your mortgage repayments, rent and utility bills and food.
Therefore, in order to determine how much money you will need to save, calculate exactly how much your fixed costs are. Start putting aside some money each payday to build up to the amount you will need. Your emergency money should be in an account which can be accessed within a short time frame with no penalties, yet it should also be inconvenient to access so that you do not dip into it whenever you need extra cash.
Think about setting it up so you need to visit to the bank if you want to withdraw the money.
Be sure to check out my top 10 tips if you’re interested in finding more ways you can better manage your money and reach your goals and savings for a rainy day.