By Robert Wynn
The sun may shine on any given day, but rain too is inevitable. This certainty applies to most people’s financial circumstances as well. While their financial equilibrium might be good most days, there will come times when unexpected expenses will upset the norm of one’s cash flow.
When the rain unavoidably falls on your carefully balanced budget, the question is whether you are prepared to weather the storm, or will this unforeseen fiscal hurdle drown your financial plan and thwart your anticipated financial goals.
Many things about money and finance are counter intuitive. Buy stocks when they’re going down (“buy low”); and sell stocks when they are going up (“sell high”). As bonds go up, their yield goes down. Similarly, when your cash flow is positive, that’s the time not to spend. That is actually the time to save for that rainy day.
Saving for a rainy day isn’t the most exciting aspect of personal finance, but just as you wish you had brought your umbrella before the rain actually comes, you for sure want your rainy day fund in place before you need it.
Here are a few thoughts regarding getting that rainy day fund in place.
Start with a budget.
In its simplest form, a budget is merely a list of the sources and amounts of all of your monthly income and a separate list of all of your monthly expenses. For those regular expenses that you pay for quarterly or yearly, find the monthly amount by dividing the amount you pay by the number of months that payment covers. Once you total all of your monthly income and separately total all of your monthly expenses, subtract your total monthly expenses from your total monthly income. And pray that the result is a positive number!
If your budget reconciles with a positive number, then create another expense line and label it as your savings. You can dedicate some or all of that savings line to build your rainy day fund.
Plug leaks in your spending habits.
If your budget results in a negative number, then you have more work to do. You need to get a notepad or set up a note on your phone to diligently log every penny that you spend for a solid month. At the end of that month, bring that list to someone whom you trust and respect from a money management perspective, and review that list in detail. The purpose of this exercise is to identify the “leaks” in your spending.
Note, this 30-day expense log exercise is a good thing to do even if your income already exceeds your monthly expenses. People invariably gain new insights when they look at their spending from a different or more granular perspective.
Open a savings account specifically for your rainy day fund.
You may already have a savings account, but you could open a new account specifically as your rainy day fund. And the best way to capitalize (put money into) that fund is via automatic transfer. Identify a modest amount – somewhere between $25 and $100 to be transferred every month from your checking account into your rainy day savings account, and watch your money grow.
Don’t rely on “non-depository” financial institutions and services.
Think about that word, “non depository”. It means it’s an institution or service that doesn’t allow you to “deposit” your money. You may be able to cash a check or pay a bill or reimburse a friend through the service, but you can’t “deposit” your money. In order to save your money, you have to “deposit” it. So be sure that you have an active relationship with a credit union or a bank. Those are “depository” institutions!
Be a critical consumer.
We live in a world that is a marketing free for all. Research has documented that the average person receives hundreds if not thousands of selling messages every day. There’s even a carefully contrived way that items are place in a grocery store designed to seduce the “impulse buyer”. Ignore messages suggesting that you need one thing or another. Go into the store knowing what you intend to purchase and refuse to be swayed by what else you see there. Buy quality, buy at discounts, find what you need at thrift stores, and avoid purchasing depreciating assets on credit.
Exercise care in trying to help others.
Surely you want to be a blessing to your family and friends. But try to avoid jeopardizing your own financial security by being over generous. When helping others, encourage them to explore ways to help themselves. Refer them to jobs, take them through the budget exercise to see how they can reduce their expenses. And if you do help them financially, try to structure the assistance as an exceptional one-time deal so that you don’t become someone else’s ATM. And note, there’ll be less stress involved if you help someone without the expectation that you be “paid back”.
Explore ways to increase your income.
Look into second jobs or seasonal work. This could entail working at a restaurant, as a bar tender or telemarketer during off hours. Current opportunities might exist as a census worker or a special events worker at a sporting or political event. Others have learned to make money through the internet, as an “influencer” an Amazon distributor, an eBay seller or an SEO (search engine optimization) specialist. The old school way to increase one’s income has been to turn a hobby into a money maker. This would include selling wood carved items or crafts. Others have learned to generate income from their photography, writing and speaking skills.
Teach your children well.
Enough about you. What about the youth? Why not guide them into a financially secure future. Get them into the saving habit has soon as they can hold a nickel. Show them how to “deposit” that nickel into a piggy bank! And as soon as they can walk and talk, open up a custodial savings account and show them how to give their change to the bank teller to “deposit” into their savings account at that depository institution. Convert birthdays and Christmas into “pay days” where the youth receives money for their bank instead of material items that are usually only of temporary interest to the recipient. There may be a separate article on this topic in the future but suffice it to say that we have the glaring opportunity to train and orient our youth toward excellent money management knowledge and habits. We should all take advantage of this precious moment to rescue the next generation from the paycheck to paycheck lifestyle that many of us endure today.
Money management is much like many other key subjects in our lives. It’s a topic and a practice that should be incorporated into our life-long learning repertoire and into our daily habits. When it comes to access to information and resources, we are wealthy beyond measure. Also, most of us know at least one or two people that we can approach to discuss our money and finance issues. Into everyone’s life, rain will fall. The only question will be, have we adequately prepared for that rainy day?