Like
an emergency fund, it can come in handy.
Sometimes, life gets expensive. A little
bad luck or a twist of fate can hit us right in the checkbook and challenge us
to live within our budget.
An emergency fund may help us handle major
financial disruptions. For the minor ones, a rainy day fund may suffice.
A rainy day fund and an emergency fund
differ in scale, but not purpose. Both
funds are designed to fully or partly absorb sudden costs. An emergency fund
contains enough cash to help a household through a sudden financial crisis: a
serious illness, a job loss. A rainy day fund is built in anticipation of
certain expenses, rather than as a response to unforeseen emergencies. It may
be created just to deal with one probable future expense.
As an example, think of a couple living in a desert community not far
from a normally shallow or dry creek. Most years, the creek is no bother – but
in two of the past 12 years, summer monsoons have caused the creek to swell,
with a little water creeping into their backyard, patio, and kitchen on both
occasions. Wisely, they start a rainy day fund to deal with the potential
expenses that could arise from that impending rainy day.
Rainy day funds can address all kinds of
financial inconveniences. Cars need
service and repair; a rainy day fund dedicated to auto maintenance may help
allay costs. Dental work can become expensive. So can veterinary bills. College textbooks
seem to be pricier each year.
A rainy day fund can be built gradually,
if preferred. Think $20 or $50 a
month. Or, you can devote a lump sum to one. The cash can go into a savings
account, a money market account that gives you the ability to write checks, or
an interest-bearing checking account.
How about an investment account or a certificate of deposit? That idea
could have more downside than upside. A rainy day fund is not only about saving
money, but easily accessing it. A CD gives you the chance to grow your invested
assets, but if you want to quickly withdraw those assets, you may end up with a
loss stemming from an early withdrawal penalty. Similarly, you could end up
withdrawing less from a brokerage account than you put into it, due to
investment underperformance.1
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
Citations.
1 - studentloanhero.com/featured/times-cd-work-for-your-savings/
[7/10/18]
2 - bloomberg.com/news/articles/2018-07-27/americans-have-been-saving-much-more-than-thought-new-data-show
[7/27/18]
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