Adding to your rainy day fund
It’s inevitable — your house will need some kind of repairs. These repairs might be something expected like an old water heater or HVAC system needing to be replaced, but some can also come as a surprise. Inclement weather could cause your pipes to freeze and burst. Then, you would need to repair both the plumbing and anything else that was damaged – beyond what might be covered by your homeowners insurance. Having money set aside in a rainy day fund can help prepare you for when those repairs are needed.
What is a rainy day fund?
A rainy day fund is similar to an emergency fund. Over time, your house is going to go through some wear and tear, and having money set aside in an account can help you pay for maintenance. Rainy day funds are typically reserved for the smaller-scale expenses. These expenses are typically something that you wouldn’t anticipate having in your monthly budget, so they could really throw you for a loop and leave you scrambling to find a way to deal with the cost. Having a rainy day fund keeps you from having to do the scrambling. You’ll have an extra financial security measure to fall back on.
How much should you be putting in your rainy day fund?
The amount of money that you should have in your rainy day fund depends on the value of your home, so the amount of money in each person’s savings will be different. Realtor.com recommends keeping a reserve of 1-3% of your home’s total value. For example, if your home is veiled at $250,000, you should probably keep your rainy day fund around $2,500 to $7,500. Having a rainy day fund is all about diversifying your savings. While you’re not saving up for something specific, you are saving up for when that inevitable, unexpected incident occurs.
While having a rainy day fund is important for homeowners, it is also a good practice for renters too. For someone who is currently renting with a longer-term goal of purchasing a home, it’s important to make sure that you start saving for all the expenses that come with the territory — mortgages, down payments and home maintenance. Home repairs — expected or unexpected — can have a large price tag attached. Your rainy day fund can help you pay for those without cutting into your monthly budget. It can prevent you from having to make a hard choice between keeping the lights on and buying groceries or repairing your air conditioner or roof.
How to build a rainy day fund.
Because your rainy day fund is for saving and not for immediate spending, you can make wise decisions to protect (and even grow) your savings! Talk with a local bank or credit union about creating a savings account. These accounts usually allow you to earn a small amount of interest on the money that you put into the account. While it’s not going to earn you a ton of money, every dollar earned is helpful when an emergency happens! You can then talk with your employer about setting up a direct deposit to automatically add a small amount of funds to that account every time you’re paid. If the money never hits your spending account, it’s easier not to touch it! But, if you’re worried about spending from the savings account, you can always talk with your banker about protections you can put in place – like setting spending limits or not printing debit cards with access to the account.
Entering into homeownership can be intimidating, but there are resources out there to help you along your way. United Housing, Inc. is here to help make sure that everyone has access to affordable housing. We can help you in your home search and with financing options. Most importantly, we can help educate you on the entire process. We offer homebuyer education classes every week. Remember — you are not alone. United Housing is a resource that is here waiting to help you in any way you may need.