When Should I Use My Rainy Day Savings vs Emergency Savings?

Ready-to-use savingsI get this question a lot: What should I use my “rainy day” savings and when should I use my emergency savings?  

Rainy Day savings is about $2-3,000 set aside for things that break or come up in daily life so you don’t have to charge them on your credit card and increase any existing revolving debt you may have. If you’re single and renting, $1,000 should be enough.

If you’ve seen my video on Emergency Savings, you know you should have at least 3 months of necessary expenses in an account you can access without penalties, or risking having to sell when the market is down. Your Emergency Savings are for a financial catastrophe where you are wiped out or close to it like job loss, illness, disabling injury or divorce.

Before spending your Rainy Day Savings always remember:

  1. DO NOT CHARGE THESE NECESSARY EXPENSES, use your ready-to-use savings and cut  back where you can. Do not add to your debt.
  2. PAY YOUR READY-TO-USE SAVINGS BACK after you’ve fixed the problem, see where you can save in the coming 6 months and pay your savings back for another rainy day.
  3. If your household can run normally or close to normally without paying for the expense today, then WAIT AND SAVE FOR A FEW WEEKS OR MONTHS TO PAY FOR THE EXPENSE. 
  4. Here’s my rule:  Ask yourself if you need to spend the money to keep your family’s life running mostly normally at that moment. Use your Rainy Day savings if the answer is YES. Examples:

    • Mommy broke her tooth and needs a cap. She cannot eat and can’t talk normally. Insurance pays for about 40% of what she needs.
    • We only have one car and it’s broken and not starting. Kids need to get to school, groceries need to be purchased. We need at least one working car.
    • An aging parent is ill and you have to fly out to help.
    • Your hot water heater blew and your basement was flooded. You need a new hot water heater now and an emergency plumber.
    • We owe more in taxes than we thought. Pay your taxes on time, do not risk problems with the IRS, but figure out why you weren’t deducting enough in the first place.

    Expenses come up suddenly, but some there are some expenses you know are coming up even if you’d like to ignore them. You can save for these if you plan well:

    • auto repairs that do not take your car off the road. Remember, do not sacrifice safety. If your car is unsafe to drive, make the repair even if it is still running.
    • Oops! It’s summer camp time again
    • The kids need new clothes for the summer
    • We need a new dishwasher because ours is loud and does not clean very well.
    • I hate our sofa, it’s making me feel old and ugly because it’s old and ugly
    • We haven’t seen grandma in a while, we should fly out to see her.