Having children can be a costly affair, as we all know. In addition to all the day to day expenses, there are also all those added extras that come along year on year that need to be accounted for. Things like paying for a summer camp, the requirement of a whole new uniform because they have outgrown ALL of theirs in an instant. This is where a rainy day fund could help.
A rainy day fund for your family is different from an emergency fund, because it tends to be for smaller one off and less serious expenses. But all the same, it’s very useful to have a rainy day fund to dip into. Think something to cover those unexpected but non-urgent expenses which always have a habit of popping up.
Thinking of setting up a rainy day fund for your family? Read on to hear my tips on how you can make that happen.
Planning for your rainy day fund
Firstly draw up a budget – you can create different “pots” to help you categorise your different areas of spending. For example, one for bills and necessities, one for savings, and one for fun. For more tips on how to draw up a budget see here.
Cut down on extras
In order to siphon off money into a rainy day fund, you’re going to have to create some slack. That is unless you happen to have extra funds available which you can ring fence already. Things like eating out, takeaways, subscriptions, taxis, clothes shopping, cutting down on frivolous online purchases you don’t need. Plus anything else that is a luxury should be the first to go.
Get into a saving mindset
If you want to save money for a rainy day fund, saving has to be bumped up on your agenda. You can’t simply hope that you will have a few spare pennies to put in a rainy day fund at the end of the month. Be pro-active in making that happen.
Make sure that money hits your savings as soon as it comes in – that way you won’t be tempted to blow it all because it will be out of reach! I would recommend automating it that way you won’t be tempted to shirk this one. This change in habit towards saving will make a huge difference to your ability to save for a rainy day fund.
Sell stuff you don’t need
I don’t know about you but my house is rammed full of things we don’t need. Sell them off on ebay or on local selling Facebook groups. Then put the money straight into your rainy day fund. I promise you won’t regret it!
Use a stocks and shares junior ISA
When putting money aside for a rainy day fund, using cash ISAs or general savings accounts may be common. However did you know there is a potentially smarter way? By using a stocks and shares junior ISA, this enables you to put money in and make it potentially work a bit harder. A Junior Investment ISA is a tax efficient way of getting some better returns than you would with just a normal savings account. Food for thought don’t you think? Let’s get into the nitty gritty of it.
There are two types of Junior ISA:
- Junior Cash ISAs: earn interest like a savings account. The interest rate is fixed and typically based on the rate set by the Bank of England.
- Junior Stocks & Shares ISAs: (Also known as Junior Investment ISAs), these invest in financial markets with the aim of earning returns for investors that are greater than those you would get in a Junior Cash ISA. Returns are not guaranteed, and the value of your investments can go down as well as up.
If you’re setting up a rainy day fund specifically for your child, your child can have one or both types of Junior ISA and you can deposit up to the annual limit of £4,260 into them in any combination you like.
For example, you could pay £2,000 into a Junior Cash ISA and up to £2,260 into a Junior Stocks and Shares ISA, or vice versa. You can split the allowance however you want to between the two accounts. The benefit of a Junior ISA is that you or your child won’t pay tax on any interest, returns or dividends they receive.
Happily, Wealthify can help you with that with their Junior Investment ISA. Do note that any money paid into a Junior ISA will belong to the child, but they cannot access it until their 18th birthday so obviously this is something to keep in mind if you need a more immediate rainy day fund.
Have you set up a rainy day fun for your family? Or perhaps it’s something you plan to do? Do leave a comment and share.
*This is a collaborative post