• An emergency fund protects you from unexpected financial emergencies.
  • A rainy day fund protects you from one-off, unexpected expenses.
  • Both are essential to an apt savings strategy.

Every day we are subject to the whims of the world. Monday could bring about a big job promotion (go you!) while Friday could leave you with a totaled car. The only thing certain is uncertainty, and, according to the Fed’s most recent survey, we Americans aren’t financially prepared for the unknown.

According to said survey, 40% of Americans would struggle to pay for an unexpected $400 expense without selling something or borrowing money.

Fortunately, there are two ways to save for life’s unexpected challenges: setting up an emergency fund and a rainy day fund. Sound like the same thing? We thought so too before we did a little research. Shall we dive into the differences together?


The deets

Rainy day fund

Emergency fund
What is it?Fund to pay for one-off smaller, unexpected expenses.Fund to dip into in case of an unexpected financial emergency.
How much should you save?$500 – $1,0003 to 6 months worth of expenses
When should you use the money?Childcare emergency
New car battery
Refinishing damaged floors
Lost your job
Emergency room bill

Rainy day fund

A rainy day fund serves to help prevent you from going into debt by covering those smaller, one-off expenses that seem to pop up. Say you need a $300 repair on your car. Doesn’t sound like that much, right? Costs like this add up, can throw your entire budget out of whack, and rack up credit card charges. That’s why you need a rainy day fund.

Here are some example use cases:

  • New air conditioner
  • Repairing a broken window
  • Replacing a flat tire

You should aim to have $500 to $1,000 in your rainy day fund, and it’s a best practice to keep your rainy day fund in liquid (aka cash). The best place to store it is in an account where you can access the money within a few days to a week, like a Twine Savings Account. 

The thing with rainy day funds is they’re cyclical. Once you’ve spent it, it’s time to start saving again because, well, life happens.

Emergency fund

In case of an emergency…what’s your plan? Not sure? That’s why you need an emergency fund. They make sure you have the funds to survive in the event of a blindsiding financial emergency. Similar to a rainy day fund, one sets an emergency fund in place to avoid having to go into debt to handle a crisis or use up their hard earning savings all in one swoop.

Here are some example use cases:

  • Job loss
  • ER/hospital bill
  • Natural disaster

If you’re not sure where to start, $1,000 is a good starting goal. Otherwise, the ideal savings is six months worth of expenses for one income earner or three months worth of expenses for two income earners.

Because emergency funds are meant to be safe accounts, it makes sense to build your emergency fund in a place where you can easily access your money within a week, like in a Twine cash savings account or a money market fund.

Words from the wise: All investments come with risk whether it be in the market or inflation. However, the biggest risk when it comes to emergencies is not being prepared.

How to get started

Congrats on deciding to take a step toward financial security! Getting started building your emergency fund and rainy day fund is easy. Simply start by putting money away each month. The more, the better, but $25 or $50 is a good place to start. With Twine, you can even automate your savings without having to think twice.

If it feels right to you, try increasing your contribution to your emergency fund and rainy day fund over time. Remember, good things come with time. Your fund won’t bloom overnight, but pretty soon you’ll have your rainy day fund and emergency fund filled to the brim.

Don’t delay; be prepared for the unexpected today!

Put your money to work.

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