Home prices are on the rebound in many parts of the country, but the Great Recession and the housing downturn devastated the finances of families across the nation. The FINRA Foundation collected data during this period, when many family budgets were stretched past the breaking point, which suggests that having a rainy day fund can make the difference between being able to stay in your house and making late mortgage payments and facing foreclosure.
Households without a rainy day fund were three times more likely than households with emergency savings to make a late mortgage payment—and almost twice as likely to be involved in a foreclosure. Remarkably, these differences exist even after controlling for other factors that can impact mortgage payment behavior—like income, education and geographic region.
So if you don’t already have a rainy day fund, make April the month you start one. Start small if you have to. If you begin by saving 20 dollars a week, by the time next year’s financial literacy month rolls around you will have a rainy day fund of over $1000. And if you already have a rainy day fund, make sure it is large enough to cover your expenses for 3 or even 6 months.
Tax day—April 15th—falls right in the middle of financial literacy month. If you are getting a refund from the IRS this month, consider putting all or a substantial portion of it into your rainy day fund. Saving for a rainy day can mean the difference between weathering a financial storm and staring at late mortgage bills or a foreclosure notice.