How to protect your rainy day fund when it rains a lot

Tim Falk 27 July 2016

rainy day funds

If you have a rainy day fund but it always seems to be raining, here’s how you can save for a more secure financial future.

No matter how financially disciplined you are or how well you plan, the simple fact is that you can’t predict the future. Cars break down, people lose their jobs and injury and illness can strike at any time – all of which can have a significant impact on your financial wellbeing.

Even if you have a rainy day fund set aside for such unexpected expenses, it may not be enough to help you weather future financial storms. Let’s look at ways you can better set yourself up to cope with any unexpected expenses.

What is a rainy day fund for?

A rainy day fund is money you set aside to cover the unforeseen expenses that arise when something goes wrong. Also known as emergency funds, rainy day funds usually take the form of savings accounts and can come in handy in a wide range of situations, including:

  • If you lose your job.
  • If you’re self-employed and your business experiences an unexpected rough patch.
  • If you suffer a serious illness or injury and incur expensive medical bills.
  • If your car breaks down.
  • If you need to make emergency repairs, for example, if your home is damaged in a storm.
  • If you receive an unexpectedly large bill, such as school fees or car registration.
  • If you need to offer financial assistance to a loved one in the event of a family crisis, or perhaps fly interstate or overseas to offer emotional support to a family member.

How much do I need in a rainy day fund?

There’s no “one-size-fits-all” answer to this question. You’ll need to consider the amount of money you spend each week and month, as well as the other people who are dependent on you for financial support, such as spouses, children and elderly relatives.

Financial experts generally advise keeping the equivalent of anywhere between one and three months of your regular ongoing expenses set aside in an easy-to-access account, or between one and six months of your salary. But rather than relying on a rule of thumb, it pays to sit down and consider exactly how much money you would need to maintain financial security in a range of situations.

Make sure to think about:

  • Your day-to-day expenses, such as groceries and fuel.
  • Your bill payments for utilities, phone and Internet.
  • Any regular repayments on your mortgage, rent or car loan.
  • Other regular expenses, for example gym memberships and private health insurance.

You will also need to consider whether you and your loved ones will be able to rely on other sources of income. For example, if you suffer a serious injury and are unable to work, do you have any insurance cover in place that may offer a benefit, such as income protection insurance? Do you have investments that can be used to provide an ongoing income, for example, dividends from shares or rental income from an investment property?

Once you’ve taken all these factors into account you will be able to work out how much you need in your emergency fund to look after yourself and your loved ones if something goes wrong.

How to protect yourself against unexpected expenses

Even if you are smart and plan ahead to set up a rainy day fund, if you have a couple of “rainy days” in a row the balance in your account can quickly disappear. If you can’t rely on your regular income or if you have a couple of big bills come in at the same time, you might be surprised at just how quickly your hard-earned savings could diminish.

With this in mind, there are several steps you can take to ensure that you can keep your head above water no matter what the future holds. Options worth considering include:

Insurance

There are plenty of insurance options worth considering to provide financial security for your family. Life cover pays a lump sum benefit if you die or are diagnosed as terminally ill, TPD cover pays a benefit if you become totally and permanently disabled, while trauma cover provides protection if you suffer a critical illness.

Income protection insurance provides a replacement income if you are ill or injured and unable to work, while bill protection cover helps you meet your financial obligations in the same circumstances.

If you run a business, you might also want to consider business expenses insurance. This covers your fixed business expenses if you are temporarily disabled and unable to work, allowing your business to stay afloat while you concentrate on your recovery.

Investing for income growth

Investing your money isn’t just about capital growth; you can also choose investments that provide a source of income you can rely on when unexpected difficulties arise. Shares are one investment option that allows you to earn an income; by investing in companies that pay dividends to shareholders, you can use your share portfolio to provide a financial boost and to see you through a tough period.

Owning an investment property can also help. If you own a property that provides weekly rental income, this can help lessen the financial impact if you lose your job or incur expensive medical bills.

Your guide to share trading accounts.

Saving more

Another way to better prepare yourself for a rainy day is to do more to grow the balance in your emergency fund. Instead of simply putting over a dollar or two here and there when you have some loose change, consider setting up a regular payment plan and depositing a fixed amount into your rainy day fund each week.

Review your account regularly to make sure you are earning a competitive interest rate, and you may even want to establish a savings goal. Saving can become a whole lot easier when you have a goal to work towards, so consider your budget and your financial needs and set yourself a target amount to reach by a particular date.

There’s also plenty more you can do to help withstand any financial difficulties brought on by a rainy day. Check out the saving tips below for more information on what you can do to provide increased financial security for yourself and your loved ones.

Your guide to best money saving tips.

Tips on saving for a rainy day

Work out a budget

Working out a realistic budget is a crucial step in becoming a more efficient saver. Include your everyday expenses and also any larger occasional bills that may arise, before calculating how much you can reasonably afford to save each week. Consider whether there are any expenses you may be able to cut back on in order to save more.

Earn interest

Make sure your rainy day fund isn’t just sitting in a transaction account earning zero interest. Compare high-interest savings accounts that offer easy access to your funds. These accounts make your money work harder for you and will help you grow a larger rainy day balance, while also allowing you to access your money quickly when an emergency arises.

Be wary of fees

Make sure you’re aware of all the fees that apply to your rainy day account – ongoing service fees can quickly eat away at your savings balance without you even realising it. It’s also worth making sure that you meet all the necessary requirements for your account to remain active and prevent the funds being seized by the Australian Securities and Investments Commission.

Don’t dip into your rainy day fund

Your rainy day fund is there to help out in emergencies only, not to be used for frivolous purchases. Remain disciplined and don’t access the money in your account unless absolutely necessary. Taking steps to make the account a little harder to access – for example, opening it with a different bank and not linking it to your everyday transaction account – may help.

Speak to your lender

If you’re experiencing temporary financial hardship and are having trouble making your loan repayments, get in touch with your lender. Most banks will be able to come to some sort of arrangement, for example, a repayment pause, while you get back on track financially.

Overdrafts and personal loans

If you need access to extra money, you may wish to consider an overdraft or personal loan from your bank. However, the high interest rates and fees that apply to these options can soon lead to even further financial difficulty, so compare all your options before you borrow any more money.


If you have the foresight and financial discipline to save for a secure financial future, you’ll be able to stay dry and keep your head above water no matter how much it rains.

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