Your Sunny Day Fund

Credit: foto76 at FreeDigitalPhotos.net

One of the terms you have most frequently seen in my 146 (now 147) blog posts since 2012 is “rainy day fund.” It’s an unhappy term, but a necessary pillar of financial security. Cars break, houses fall apart, people get sick, and people lose their jobs. If people don’t have enough money saved up to get them through their unique personal thunderstorms, things don’t usually go so well. You need enough cash to be able to get through dark financial times. It’s as simple as that. I haven’t met many people who disagree with me on that premise, and I can tell you from experience that it usually doesn’t take very long for someone who is serious about financial security to build up a reasonable rainy day fund.

After someone has a rainy day fund, I frequently recommend that they work on saving more and investing more for things like the next car, the second home, and most importantly, retirement. I’ve found that there are some highly motivated, goal-driven people who go after hitting their savings and investing goals with the same vigor with which they built a rainy day fund, but I’ve also observed that a lot of people seem to lose “steam” or momentum. Why is that? I think it may be because saving for future wants and needs requires a little more self-control. It also lacks a catchy name.

So today, I’d like to throw out a happier term that I first heard on the radio as part of an advertisement for a national bank. I’d like to start calling the brokerage accounts, 401(k)s, and IRAs that you are saving into for your future your “sunny day fund.” Doesn’t that have a nice, warm glow to it? Doesn’t it have a better ring than some of the hideous titles bestowed upon employee savings vehicles? I think so!

As I’ve often said, my greatest concern for current workers, and particularly those of my generation and younger, is that the rules of the game are changing. Retirees once had pensions, Social Security benefits, and their savings to get them through the rest of their lives, but today’s workers will have to rely much more heavily, if not entirely, on their savings to get them through the rest of their lives. Sadly, I believe this means the days of being able to save very little and still retire with a reasonable income are numbered.

Saving and investing for your future are critical. It’s more fun to spend now, there’s no question, but I hear it’s also nice not to have to work until the day you die. Working towards that dream car, that vacation home, and those annual family trips by saving and investing now can be fun, too! Maybe it doesn’t feel as fun in a brokerage account, 401(k), IRA, or another type of account, but I really think it can be fun if you tweak your perspective just a little bit and decide that you are saving and investing to accumulate enough assets to propel yourself through the golden years. The bigger your sunny day fund becomes, the brighter your future could be.

-Tom