Saving for a Rainy Day: Why It’s Important and How to Do It
Saving for a rainy day means setting aside money for unexpected expenses. Unfortunately, the majority of American families live just above their means, with their paychecks going directly toward the needs of their families. Many families don’t feel they have the ability to save money for something unexpected. In these situations, credit cards are often relied upon to cover costs.
However, at a basic interest rate, an average American family can take $50 and place it into a moderate-return savings account (around 5%). Several online bank accounts even offer higher returns. By consistently depositing $50 into the account, leaving the interest to reinvest, and never touching the account, in 20 years, that account could reach $1 million. This may sound too good to be true, but after doing the math, it’s actually quite feasible. It’s not difficult to save just $50 per paycheck—yet for many, it remains a real challenge.
Small Adjustments to Build a Safety Net
Placing money aside in a savings account that remains untouched is one of the best gifts you can give your family. It’s money that can be there for emergencies or simply set aside for future needs. If a parent can afford it, saving just $50 per month in a savings account for their child could enable that child to attend the college of their choice, assuming the interest rate is at least 5%, and the interest is reinvested. Readjusting the family budget might reveal some unexpected savings. For example, is there a smoker in the household? Quitting smoking is not only beneficial for your health but also for your finances.
Unfortunately, the better the quality and nutritional value of food, the more expensive it tends to be. This seems backwards in a society struggling with obesity, but saving money by buying cheap food isn’t worth the health drawbacks. Similarly, turning down the heat a few degrees and encouraging family members to wear sweaters and socks is a small change that can save up to $25 per month, depending on the type of heating used and the size of the house. Lowering the temperature on the refrigerator and opening blinds during the day can further reduce energy costs, potentially freeing up an extra $10 per month to put aside.
Maintaining your car’s engine and changing the oil regularly is another effective way to save money. Engine cleaning additives and a clean air filter can improve engine performance and save up to 3% on fuel costs. At $2.75 per gallon, that 3% can add up over time, giving you a nice extra savings. Walking or biking whenever possible is another way to reduce gas expenses and improve health.
By identifying these small expense-saving tactics, families struggling to save for a rainy day can begin to build up their savings. It’s not easy with children needing various things, the rising cost of living, and the challenge of securing fair wages. Even families that earn a healthy income may struggle with saving properly.
It’s not uncommon for families earning between $100,000 and $200,000 per year to be financially strained. For those not in this income bracket, it may seem impossible to comprehend. However, high earners often live at a higher standard, relying on financing to the point where they have little, or no, money left to save. Society is structured around spending what you earn, meaning that whether you live off $1,000 per month or $10,000 per month, you’re likely financed to the max. Financial experts suggest living below your means. For instance, purchasing a $150,000 home instead of a $300,000 one allows for better maintenance, home improvements, and a larger cash flow.
If any family can learn to consistently save 5 to 6% of their monthly income in a “no-touch” savings account or a low-risk CD, they will likely have enough funds for both emergencies and non-emergency expenses as they arise. Saving for a rainy day is an intelligent practice that was once easier to do. While the cost of living soared in the 1980s, wages never quite caught up. Nevertheless, by following a few simple saving principles, almost any family can set aside $50 per month for their rainy day fund.
