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3 steps to saving for a rainy day

By Kemberley Washington ·
Tuesday, March 4, 2014
Posted: 4 pm ET

We all need to save, but the reality is that many of us do not. According to Bankrate's Financial Security Index, 28 percent of individuals do not have any money saved. And only one in 5 has enough savings to cover three months of expenses.

How can you save when there is more month than money? Here are three ways to save for a rainy day:

Save something, no matter how little

This has been my motto since college. I have always committed to save something, no matter how big or small.

Think about it: If for the last 10 years you simply saved $50 twice a month, you would have accumulated more than $12,000.

No matter the amount, commit to save something from each paycheck. You will be surprised by how quickly this money adds up.

Keep it in a safe place

Of course, "rainy day savings" is just another name for an emergency fund. You want to be able to tap this money quickly. For that reason, save the money in accounts that pay a little interest but are safe, liquid, and unlikely to suddenly and dramatically rise or fall in value.

Good places to park such money include certificates of deposit and money market accounts. These accounts pay a little interest, so your money can grow faster as you prepare for a rainy day.

Parking the money in savings bonds reduces your liquidity, and keeping it in short-term bond funds subjects you to higher levels of risk. But despite such drawbacks, putting money in these places may boost your returns.

Eliminate unnecessary expenses

Make adjustments to your budget to eliminate unnecessary expenses that may prevent you from saving. This may require cutting some expenses and saying "no" to some items until your savings have grown.

Also, consider your rainy day savings off-limits. Your emergency fund should only be used for a true rainy day.

Kemberley Washington is a certified public accountant and professor at Dillard University in New Orleans. Follow her on Twitter: @kemwashcpa.

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March 04, 2014 at 10:10 pm

Whenever I save for a "rainy day," that day comes and it's all gone. It's always something.