Save for a rainy day: 5 myths about emergency funds

October 11, 2022

It’s one of the best things you can do for your financial future, but fewer than half of American households have an emergency fund. Good news, it’s easier than you think to start saving for a rainy day. Here are five common beliefs that shouldn’t stand in your way.

Is an emergency fund the same thing as a rainy day fund? They're very similar but they are not exactly the same. Below are tips to help get you started on the path to saving, and an explanation for why we prefer the term rainy day fund.  


1. “I can’t save until my debt is paid off”

Paying down your debt is an important financial priority, particularly if it’s accruing interest. However, research shows that keeping some money on hand for unexpected expenses improves long-term financial security – even if you are paying off high-interest credit cards. Setting aside as little as $400 can help prevent you from going into further debt when unexpected expenses arise.


2. “I can’t afford to save for an emergency”

If you feel like you’re living paycheck to paycheck, you’re not alone. But saving even a small amount can make a difference. If you save $50 per paycheck (just $25 a week), you will have $400 saved in 4 months. If $50 feels like too much, start with a smaller amount. The key is to start saving now - you’ll be surprised at how much it adds up over time.


3. “I need to save 3-6 months expenses”

Financial experts often recommend setting aside 3-6 months of expenses. This recommendation is based on the average amount of time it takes to find a new position if you lose your job. But this goal can be overwhelming if you are paying off high-interest debt or living paycheck to paycheck.

If you’re among the nearly 40% of American households who can’t cover a $400 emergency expense without borrowing money or selling something, start there. Once you have saved $400, aim for $1,000. You can also set personally meaningful targets, like one month’s rent or mortgage payment.


4. “I should only use my savings for serious emergencies”

A car accident is clearly an emergency. What about a flat tire? Or a speeding ticket?

All three are unexpected situations that require you to pay money to keep driving your car. If your choices are between using your emergency savings or borrowing money, dipping into your savings will cost you less. Just remember to replenish your fund when you can – and drive a little more carefully.

Having an emergency fund that you don’t use because your threshold for “emergency” is too high can cost you more in the long run. This is why we prefer the phrase “rainy day fund.”


5. “Rainy days are always bad”

Your beloved friend's wedding might be a shock to your budget, but a happy one. Imagine how good it would feel to know that you can send a thoughtful gift, or travel to the event, without having to take on debt.

As you prepare to save for a rainy day, consider not just disasters but all the surprises that life will bring you. You can think of your savings as a shelter from the storm, or you can dance in the rain.


Don’t be caught off guard by these common unexpected expenses. Be ready with these tips.

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