According to the financial gurus at LearnVest a rainy day emergency fund should have at least six months of net income in it. If we haven’t scared you yet, keep reading.
Don’t worry, setting a rainy day fund up is easier thank you think and just takes some time and a little self control.
1. Follow the 50-30-20 rule.
2. About 50 percent of your income is for living expenses (think rent, groceries, gas, insurance).
3. About 30 percent of your income is for having fun (think shopping, dinners out with friends, more shopping).
4. About 20 percent of your income is for savings – retirement, rainy day and paying off any debts.
With this formula, if you make $50,000 per year you’ll be saving about $10,000 in your retirement/rainy day/debt bucket — $833 before taxes.
With your $833 this is how you’ll split it up.
1. If your work offers a 401k matching be sure to put the minimum amount to have your employer match in your 401k. In this $50,000 per year scenario let’s assume that the person is putting away $100 per month in a 401k or Roth IRA. With $733 left in the bucket split it equally between paying off your credit card debt and putting money into a savings account for a rainy day fund until you have about six months saved. No credit card debt (you are amazing) just contribute that whole amount to the emergency fund.
When are you allowed to take from the rainy day fund (hint, it’s not at Nordstrom’s semi-annual sale).
1. You lost your job *yes obvious, we know.
2. Medical or dental emergency.
3. Emergency car or home expenses.
4. Family funeral expenses.