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Continued: Nuts and bolts for helping you build a rainy day fund

  • Article by: GREGORY KARP , Chicago Tribune
  • Last update: June 24, 2013 - 4:50 PM

Maybe most important, however, was the emotional freedom the fund provided. We got to the point where we viewed the cash as a “take this job and shove it” fund. If either of us got fed up at work, we could quit without immediately having a new job lined up. We didn’t have to be trapped in work that made us miserable.

So my wife quit her job.

The emergency fund filled the income gaps of her intermittent consulting work. After 10 months out of work, she’s rested, revitalized and ready to resume her career full-time. For our family, our opportunity fund was a real example that money can, indeed, buy happiness.

Rainy day Q-and-A

Q: How much do I need?

A: Typical advice is cash equal to three to six months of bare-bones expenses — food, shelter and utilities. But that dollar figure can be overwhelming. Start with intermittent goals, such as $1,000, $2,500 or enough to pay four months of the mortgage or rent.

Q: Does it have to be in cash?

A: Preferably. Cash gives you the most options and is quickly available. But when trying to safeguard against job loss, which requires a much bigger fund, consider unused credit on credit cards, home-equity lines of credit and even potential borrowing from family.

Q: Where do I keep it?

A: Ideally, keep cash in a separate account. Consumer behavior studies show we’re more likely to keep our hands off it for discretionary spending because of “mental accounting.” We view it as unavailable. Don’t stress about earning decent interest on the money. Think of it more as insurance than an investment.

Q: Where do I get the money?

A: Fund it with automatic contributions — an electronic transfer from your checking account on payday, for example. Also fund it with lump-sum windfalls, such as a portion of your income tax return.

Gregory Karp, the author of “Living Rich by Spending Smart,” writes for the Chicago Tribune. Readers can send him e-mail at

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