Rainy Day Funds

Last year, Hurricane Irma barreled through Southwest Florida, causing millions of dollars in damages just in our area. Most people have insurance to cover this damage, but some of the repair work will still need to be covered by money out of pocket. This is commonly called a “rainy day fund” (very literal after a hurricane with lots of flood damage). But, many people don’t even have one. Or, they aren’t sure how much they’re supposed to have saved up at any given time. So, how much should you have set aside for potential emergencies? Do different types of emergencies warrant different types of “rainy day funds?”

Your Rainy Day Fund

Your home repair emergency fund, or “rainy day fund,” should be specifically set aside for emergency home repairs. In Florida, this would be for things like the air conditioner suddenly breaking, or a large crack appearing in your pool which warrants a major replacement or pump repair. Other common things you see in our area are the water heater, or the roof leaking and requiring replacement. But, how much should you have set aside in this fund? This fund should be a part of your monthly budget for the home, so essentially you should be putting a bit away to this account automatically just in case. You’ll never miss it in the first place. Experts suggest always having a cash reserve of three- to six-months of living expenses on hand for these types of emergencies.

Emergency Funds

Experts also suggest having general emergency funds, and also dire emergency funds. What’s the difference? General emergencies are for such things as the AC breaking, or a major roof leak. A dire emergency is a job loss, or a major illness which requires you to take serious time off work. In Florida, this also includes such things as a hurricane or other natural disaster, like a flood. In this case, you should have about 10% of your annual income set aside. You need to be able to pay your mortgage, and you don’t want to lose your home over something that’s totally out of your control.

Don’t Have Emergency Funds?

It’s the middle of rainy season in Florida, your roof has a major leak, and now you have a risk of mold. You need this to be fixed right away, but you don’t have emergency funds set aside. You have a few options, but the best two are to take out a home equity loan or a home equity line of credit (HELOC). Both of these let you tap into the value of your home to cover costs. A major difference, though, is that the home equity loan is a lump sum, and you’ll often have a fixed interest rate. HELOC is a line of credit that you can borrow. A HELOC lets you draw money from the account as much as you need up to the available maximum amount. Also, a HELOC usually has an adjustable interest rate.