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Preparing for Rainy Days

There is an old song by the Carpenters that goes: "Rainy Days and Mondays always get me down." I'm not a big fan of Mondays myself (the weekend always seems to go too fast!), but there is something you can do about rainy days. I'm not speaking literally about days when rain is in the weather forecast, but those "rainy" days when things just don't go your way. Rainy days are inevitable. Everyone has them. But, the good news is that you can prepare for them financially.

First of all, let's talk about what exactly qualifies as a financial "rainy day" or emergency. Dave Ramsey says that you should ask yourself if the spending is unexpected, necessary, and urgent. If the spending qualifies as all three, then you have an emergency. Things like mortgage payments, when you have lost your job, car troubles, medical or dental emergencies, or unexpected home repairs qualify because if you don't pay for them, there can be dire consequences. On the other hand, things like Christmas shopping or a broken dishwasher would not qualify.

There are many benefits of having an emergency fund. First and foremost, it puts your mind at ease. Knowing you will be covered financially in the event of an emergency can make your life less stressful on those rainy days and even help you sleep better at night in general. Secondly, by building your emergency fund in a separate account, it can help reduce the temptation to spend it on something that is not truly an emergency. As they say, "Out of sight, out of mind" and that applies to emergency funds as well. And finally, that rainy day fund can prevent you from having to make bad financial decisions. For example, if an emergency arises and you aren't prepared, you may be forced to use credit cards and pay high interest rates, withdraw retirement money and get hit with early withdrawal penalties, or borrow from friends and family which can cause tension in the relationship, and so on.

Hopefully, you are convinced that you need a rainy-day fund. How much should it be and what type of account should you use? A good rule of thumb is to build an emergency fund equal to about six months' worth of income. It should be easy to access on those rainy days, but held in a completely separate account or bank. In fact, I can help you open an emergency fund account that is completely liquid and accessible (no penalties for withdrawals) and pays interest of 2-2.5% annually. If you were to build an emergency fund of $25,000 in this type of account, it could earn $500 or more per year in interest.

Don't let rainy days get you down. Prepare now by building a rainy day fund that will help you reduce your stress, make smart financial decisions, and achieve your financial goals. I am here to help you get started. Before you know it, you will be "Singin' in the Rain."

If you have any questions about investing or are wondering how you can get started, I would be happy to meet with you for a no-cost consultation. You can e-mail me at gleest@wtwealthmanagement.com or call (928) 225-2474.

Sincerely,
Glenn Leest

Gleen Leest

References:

Dave Ramsey: A Quick Guide to Your Emergency Fund

Vanguard: Emergency Fund: Why you need one


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