You want to know more about why a Rainy Day Fund is important?  See our Rainy Day Fund video by clicking here. This ĠEMMA Rainy Day Fund video is carried out with our partner, the Central Bank of Malta.  

You may be asking – What is a rainy day fund?  To put it simply a rainy day fund is a financial safety net that protects you when something unexpected happens.  So imagine that the clutch of your car just conks out on you.  There are four ways of how to deal with this:

  1. You have no money and you are already way out on your credit cards.  You will park your car next to your house and leave it there until you have the money to repair it.
  2. You have money in the bank but this is committed.  You decide to max your credit card so that you get your car fixed.  You have now an additional financial burden and a monthly commitment to pay off your card.
  3. You have money in the bank.  You dip in your savings account to pay off the repair costs.  You now however have reduced savings.
  4. Independent of other savings, every month you put aside another sum so that you build a rainy day fund.  So – you pay off the repairs through your rainy day fund; and in doing so avoid a crisis situation:  you have a reserve buffer that allows you to finance the clutch.

With a rainy day fund you are buying yourself peace of mind for the future.  When a crisis hits — large or small — your finances will not add to your stress levels as have a buffer in place, and so you can get on with what needs to be done.  It provides you with a financial safety net.  Additionally, a rainy day fund protects you from dipping into other savings accounts when a crisis hits, helping you to stay on target with all of your budgeting and saving goals.