The Rainy Day Fund

I subscribe to the Kim Komando Newsletter, so I receive at least three messages per day from her. Most contain very good advice on a variety of topics, and I always view the Video of the Day clip that she inserts in all of her newsletters.

Earlier this week I got a message that gave advice about frugality in these tough times, along with a Website Kim recommends for frugal living tips. The main theme of the message was that we have to control and limit our spending on frivolous items as well as big-ticket purchases.

Unfortunately, that advice is in large part the cause of our current financial crisis. Too many of us have cut back on purchases at a time when those purchases would help to fuel a recovery. The advice comes at exactly the wrong time. I regret that I have to disagree with Kim.

Granted, there are a lot of families who either don’t have any savings in reserve, or who have used up all their reserves already. That is because those people did not put away a little out of each paycheck for that “rainy day” and now the “rainy day” has arrived.

I don’t claim to be an expert on finances, but I learned early on in life that we have to anticipate some bad times and set aside funds to tide us over. Now my wife is a real Nervous Nellie when it comes to money, so we have more than the six-month-savings that is generally recommended for cash reserves.

If I have a major expense that is unanticipated then I also have the money in reserve to cover it. If I don’t ever have that car breakdown or that medical emergency, so much the better. But the fact remains; I have something saved that is over what I normally have to spend for daily living.

My reserve fund isn’t in some risky investment, but it isn’t in a mattress either. I keep it in a safe credit union account that pays a reasonable dividend and is guaranteed by the federal government. If I need it, it is instantly available.

You knew this column would come with some advice of my own, so here it is. If you don’t have a “rainy day” fund, there is no better time to start one. However, don’t make it tough on yourself and your family by pinching your pennies.

Discuss the amount you would need for emergencies —usually 3-6 months of income—and agree on a reasonable time frame to save that much. You might only be able to bank $50 out of each paycheck, but $50 is better than nothing. And you will be pleasantly surprised at how fast the account grows when you deposit regularly.

I wrote an earlier column that gave an excellent way to find and save that extra money. It is titled, “Pay Yourself First.” If you scroll down on this page, you will come to it two down from here. Now you have double incentive to quit paying Uncle Sam interest-free loans by having too much withheld from your pay for federal taxes. And for most of us, that will be more than just $50 per pay.

Meanwhile, my second tidbit of advice is to start a budget that will still allow you to purchase necessities without scrimping or doing without. There are plenty of good budgeting tools available on the Internet, and some public services can also be of use.

So, for at least this one occasion I must take issue with Kim Komando. We have to get this economy moving again, and the best way to do that is to get out there and support your local retailers. Start building that reserve, but keep buying, too.

Did you know that unpaid parking tickets and library fines for overdue books and materials affect your credit score?