Save it for a Rainy Day – The What, Why and How…

We usually associate the phrase “Save it for a Rainy Day” with putting aside something for a time of special needs or emergencies.  The “Dictionary of Clichés” dates the origin of the saying back to the year 1580.  So it’s been passed down through generations for well over 4 centuries.  Though it’s still advised to let your favorite wise elder stake their claim as the originator! 😉 

It seems that anytime there’s a lot of rain in the forecast, this phrase tends to get a fresh breath of air; it gets repeated more frequently.  And though we may not act on the advice, we’re more prone to think about the suggested possibilities.  

Which leads to the questions….What can you save for a rainy day?  Why should you save for rainy day? And, how can you save for rainy day?

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What can you save for a Rainy Day?

The obvious answer is money.  But you can also save special projects that can only be completed when it literally is rainy outside.   In business there are always projects that are important but not urgent.   These are great candidates for rainy day projects, just know that they will never get completed until they are clearly identified and assigned an owner; someone who is responsible for them.

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Why should you save for a Rainy Day?

This list for this should be long. Unless you have won the lottery, or your business is swimming in cash, you probably have reasons why to save for a rainy day.  But the reality is even the most successful companies are continuously reviewing their strategies of managing their money and finances.   A few examples to help you get started with “Why save?”

  • Unexpected downturns in the economy, funding expansions/growth, and funding retirement.
  • Personal reasons may include college funds, a house, emergency funds, personal financial independence, or personal retirement accounts.
  • From strictly a “cash reserves” vantage point, we encourage businesses to have 3 to 6 months of monthly expenses in reserve or readily accessible.  This is also a good rule of thumb for individuals/families.   It is the best insurance policy to keep you from having to take out a high interest loan when the unexpected happens.

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How can you save for a Rainy Day?

The simple answer is “Just Do It” But to do it you need to be disciplined.  Way too many businesses find reasons why they need this or that.   “Wants” and “needs” are two different things.  Needs are required.  Wants are a luxury; you will survive without them. 

Once you get clear on wants and needs, you should be able to free up a few dollars.  Next, try to get contributions to the rainy day fund set up so they happen automatically or at a minimum are  scheduled.  Think of it as money you’re paying yourself and/or your business first.  Most businesses (and individuals) tend to spend more if they have more readily available to them.  Everyone isn’t like that, but as a rule if available cash spikes reasons for spending spike.      

Speaking directly to retirement, which may be the ultimate “rainy day fund” we suggest starting early and being disciplined.  We are always amazed at the number of our business owner clients that offer matching 401K plans (or similar) and have a percentage of employees that choose not to participate!   If you are an employee and your company offers a 3% match (or other), give yourself a 3% raise by simply contributing 3% of your salary to the 401K.  

Why start early?  Thanks to compounded interest it adds up big time!

  • A 20 yr old saving just $70/wk will have $1 Million at age 65. 
    • Your contribution?  $200,200 (only 20% from you)
  • Start at 40 and you need to save $322/wk to get to $1M @ 65!             
    • Your contribution? $418,000 (over 40% from you)
  • Start at 55 and you need to save $1,400/wk to get to $1M @65!
    • Your contribution? $728,000 (over 70% from you)

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What about you?  Do you find you hear this phrase more when there’s rain in the forecast?  Do you have a rainy day fund?   Do you have a list of rainy day projects?   As always we value your comments in the space below?  

Chris Steinlage Kansas City Business Coach

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