The Rainy Day Fund
Hi I’m Olly and I write over at savvydad.co.uk about all things family and finance related. We’ve heard the term “Rainy Day Fund” and you probably agree with us that it sounds like something we should all have. So, why do so few of us actually have one?
Well, I’ve been pondering this ever since I heard some representatives talk in London at the recent UK Money Blogger Awards. They were part of a panel discussing the topic “Have we stopped saving?”. There were various reasons for the low numbers of investors and those who actively save. Ultimately however it seemed agreed that the ability to save was dependent on our abilities to resist the natural human need for instant gratification.
Why is this important?It’s important for us to understand how our minds work in order to consider how we are as self-regulating savers. Evolution has taught us to look for “quick wins”, such as looking for that next sugar fix or caffeine hit. But our reactive mind is hardwired to live in the moment and ignore our more reasoned intentions.
As a result, very few of us look to the future and therefore slip into a materialistic life that is often based around what we have in the here and now, rather than considering what we’ll be lacking tomorrow.
How Does This Affect Our Ability to Save?Living a life of instant gratification is easy. We can sign up to the latest smartphone on a mega data package and virtually ignore the real cost of it. We can apply for credit cards with enormous limits and hardly read terms and conditions, then shift them further via balance transfers.
As days pass, however, unexpected events will also enter our lives. Children almost inevitably arrive for most, university fees, weddings, MOT failures, the perceived need for our own space or moving to a bigger home. The temptation then is to absorb these into our easy to access credit.
Pretty soon families and individuals get stuck in the role of not earning money to save, but earning to decrease debt. Our need for instant gratification shoots us in the foot and now we’re faced with the uncomfortable financial world that so many families fall easily into – escaping the debt trap.
How To Build The Buffer Zone, Find Help and get FREE money from employers.I’ll be clear though, it’s not all doom and gloom. But I feel I have to highlight all that I’ve mentioned above. Never think you’re alone when it comes to budgeting and saving, talk to friends and family and reach out actively to financial advisors and advice bureaus. Look at your individual finances and look for those big numbers to work on first dragging your finances down.
Mortgages, utilities and unwanted subscriptions are the things to revamp first. There’s a huge choice of comparison tools out there today so get phoning, form filling and comparing. Ending the day with even just one thing ticked off will help to put you in a better financial frame of mind and then leave you, hopefully, seeking gratification from the next saving you’ll make, rather than the next thing you’ll buy. Spend the subsequent days and weeks cutting back on other things like eating out, unplanned shops and then make the switch to making sure you’re also claiming everything owed to you. Fill in any forms to claim back work expenses, claim any benefits due and above all pay into a good pension – after all your employer with effectively put FREE money into it also!
Short Term versus Long Term.As the months pass, I’m not suggesting we say no to every luxury that life has, after all, a life is also to be lived. However, I feel we need to walk that financial tightrope, working as quickly as we can toward a positive and confident financial standing.
The figure bounded around as a good “Rainy Day” savings fund is supposedly enough to cover three months of your average expenses. If you find it tricky to keep all expenses tracked, keep a diary or consider using one of the many smart savings apps out there such as Yolt. This will visually show you not only what your expenses are, but also in theory show what you have left assist building your rainy day fund.
Paying into a pension from as early as possible really makes a difference to achieving a reasonable pension, in turn affording a good standard. Starting a pension later on in life means the amounts you’d need to pay in to get to the same standard are simply huge.
In conclusion, building up that rainy day fund can feel a way off for most families. However, starting to chip away at bills, subscriptions and debts now, will in turn lead to that eventual financial safety net. You can check out my website for more ideas to save on many aspects of your everyday life, make the money you spend work harder for you, or even ways to add additional income.
This article was checked and deemed to be correct as at the above publication date, but please be aware that some things may have changed between then and now. So please don't rely on any of this information as a statement of fact, especially if the article was published some time ago.