Why you need a rainy day fund

Why you need a rainy day fund as a homeowner


A rainy day fund is often referred to as an emergency fund, and is usually a stash of money in a savings account that’s easily accessible but rarely withdrawn from. With the many expenses involved in homeownership, along with those costs being generally easier to plan ahead, some may assume they don’t necessarily need a rainy day fund. In fact, a recent survey found that around 57 percent of Americans have less than $1,000 saved up. That’s not great news for our financial wellbeing, but there are solutions even for homeowners.

“Mortgage payments do not represent your household’s total living expenses.”

According to The Balance, many new homeowners assume that their monthly mortgage payments represent the entire cost of homeownership, when this is not the case. People who have recently purchased homes after renting an apartment may be especially susceptible to this misconception because as renters, they didn’t need to pay for most repairs. Homeownership is a completely different ballgame. Maintenance costs need to be factored in to home budgets, even when everything appears to be in good working order. Otherwise, homeowners could be caught off guard by a sudden leak or structural failure that turns into a very expensive problem.

Homeowners might also assume that the homeowners insurance policy they had to sign onto to secure a mortgage would cover the most significant repairs they will need to make. This also turns out to be untrue in many cases, particularly for repairs that could be considered normal wear and tear. As explained by the Insurance Information Institute, homeowners insurance is designed to financially protect owners from the total loss of their home and belongings due to a fire, some natural disasters and other covered perils. But it will generally not cover maintenance or repairs that can prove almost as destructive if they are not fixed quickly, like a crack in the foundation or old pipes.

The upshot is that homeowners will need to spend money to fix and replace things around the home, and they can’t rely on anything but their own savings to pay for it. That’s where a rainy day fund comes in.

How, and how much, to save in a rainy day fund

The hardest part of saving isn’t necessarily doing it, but coming up with a concrete plan to make it an achievable goal. Emergencies are unpredictable almost by definition, making it unclear how much should be saved up to cover those costs. However, a plan to save consistently every month often outweighs that fact.

One rule of thumb for home repairs specifically is to save around 1 percent of the home’s purchase price per year for maintenance. For example, if you live in a home purchased for $200,000, you might want to save $2,000 per year, or $166 per month in this fund. Ideally, that money would only be used for major repairs to essential components of the home, like the roof, gutters, siding or carpet, to name a few.

Another strategy is to build a more general rainy day fund that’s only used for emergencies in any category, whether it’s major home repairs or an expensive medical bill. Contribute a set amount each month to this account and reserve it only for unexpected but critical expenses. That will go a long way toward making your household more prepared for almost any financial speed bump.

Related Posts

Skip to content