"Life" happens often. Your refrigerator goes out. Your car breaks down. Do you have enough savings to cover the unexpected?
If you answered "no," then consider these tips to create a rainy day fund, or dollars that you can tap into in case of a financial emergency.
How much Do You Need?
First, determine how much money you need in your rainy day fund. Most experts recommend that you have at least enough money in your emergency fund to cover three to six months of expenses. However, depending on certain factors, you might need more or less. Of course, the more money you can save, the better.
To determine how much money you need, take a look at your monthly expenses, including everything from your recurring bills - such as your mortgage payment, car payment and student loan payment. Then include those expenses that vary month-to-month - from your grocery bills, to your utilities and monthly credit card payments. Add these and then multiply them by the number of months you want to cover.
For example, if your monthly living expenses come out to $4,000, then you'd need $12,000 for three months of emergency funds or $24,000 for six.
You'll also need to budget savings for unexpected situations. What if your kitchen sink suddenly springs a leak and destroys the cabinet and floor underneath it? What if your car needs a new transmission? What if you need medical care and your insurance only covers part of the procedure? These are all financial situations that a rainy day fund could help cover.
Like most savings options, you should build your emergency fund over time. No one expects you to save your money immediately. Start putting away whatever you can each month. BancorpSouth has a helpful calculator that can assist you with setting aside for a rainy day fund. You may find that cutting down on unnecessary expenses such as eating out, going to the movies or buying expensive coffee on your morning commute allows you to save more each month. Remember that even the smallest amount of savings adds up over time. Talk with a financial advisor or visit us to find out what the right savings option is for you.
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