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Either can help you avoid taking on debt in an emergency<\/strong><\/p>\n\n\n\n Some people just call their emergency fund their rainy day fund. No matter what you call it, these funds are there to cover the unexpected: car troubles, job loss, medical bills and more. <\/p>\n\n\n\n Some people use the terms emergency funds and rainy day funds interchangeably, but some experts (including myself) have different definitions. <\/p>\n\n\n\n Separating your emergency fund from your rainy day fund is completely optional \u2014 but having at least one can really save the day in a financial crisis. <\/p>\n\n\n\n The idea behind separating your emergency fund and rainy day fund is giving yourself limits and sorting your cash into categories to prevent dipping into your emergency fund for non-emergencies. An easy way to think about the separation is urgency, cost, and safety. Knowing those answers can tell you when to use your emergency fund<\/a> or your rainy day fund.\u00a0<\/p>\n\n\n\n A rainy day fund is great for small, one-off expenses, including: <\/strong><\/p>\n\n\n\n An emergency fund is best used for non-optional, large issues, such as: <\/strong><\/p>\n\n\n\n A typical rainy day fund ranges from a few hundred dollars to around $2,000 at the high end. Since it isn\u2019t designed for long-term issues, a few hundred dollars in that fund should be enough of a cushion for small expenses you didn\u2019t plan for. <\/p>\n\n\n\n However, an emergency fund should have around three to six months of essential living expenses<\/strong>. The number might be large \u2014 such as $10,000 or even $100,000 \u2014 but don\u2019t let that scare you. Saving for an emergency fund is a long-term goal, similar to saving up for retirement<\/a>.\u00a0<\/p>\n\n\n\n Make your emergency fund goal actionable and attainable. If you can save $200 per month, you\u2019d end up with $10,000 after about 50 months. If you saved $500 each month, you\u2019d meet that same goal in about 20 months. <\/p>\n\n\n\n Think of a rainy day fund as your first line of defense for your regular budget and your emergency fund as a last resort. <\/p>\n\n\n\n Emergency funds should be used for financial crises that seriously disrupt your life or safety for long periods, like losing your job, a major health issue, or a critical home repair<\/a>, such as a new furnace in winter.\u00a0Emergency fund vs. rainy day savings<\/span><\/h2>\n\n\n\n
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When to use an emergency fund vs. a rainy day fund<\/span><\/h2>\n\n\n\n
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How large should my emergency fund be?<\/span><\/h2>\n\n\n\n
Bottom line<\/span><\/h2>\n\n\n\n
For either savings type, consider placing your funds in a high-yield savings account<\/a> so the balances grow passively and are protected by federal deposit insurance.<\/p>\n","protected":false},"excerpt":{"rendered":"