How Much Rain Am I Expecting?

I made a decision last week, one that has the potential to shape our financial future for years to come.  It was a hard decision, and I made it while drinking coffee and staring at an Excel spreadsheet.

I decided to stop adding money to our Rainy Day Account.

We all know what the Rainy Day Account is supposed to do -- when you get a time in your life where all heck breaks loose, the Rainy Day Account lets you keep going with your life without going into massive debt or curling into a ball and dying.  Most of us also know that Conventional Wisdom (always a bad idea to blindly trust something with capital letters) says you should have three to six months worth of regular expenses in your Rainy Day Account, though some experts say as much as a year's worth.

I stopped contributing to our Rainy Day Account with just over $7,000 in it.  Not quite three months.

Instead, I turned and started throwing every available cent back toward our mortgage.  Our principal balance has dropped almost $1,000 in the past week.  Some Financial Experts (see, there are those capital letters again -- watch out!) would call this foolish, because once I've socked money into our mortgage, it's terribly hard to get it back out.  It's not liquid.  Now, a Rainy Day Account -- that's liquid.

Instead of explaining why I'm Right and They're Wrong, I'll simply say this -- general advice only works for general people.  If you are exactly like every other person in the world, it will work perfectly for you.  If, however, like my wife and I, you are a unique and personalized individual, you should take any of that general advice and see how and if it applies to you.

Here's why I stopped adding to our Rainy Day Account (your reasons may vary):

• We've got nearly 3 months worth of expenses in there.  Not a ton of money, but a good sum, should something awful happen.
• We've got financial buffers set up in other places.  We have almost $2,000 in a savings account that is supposed to be used just to pay income taxes, property taxes on the house, and homeowners insurance.  If we had an emergency, we could tap into that.
• Our income is diversified.  Most people get their money from one source and one source only, so if they lose that job, they're sunk, and need to fall back on that Rainy Day Account.  My wife and I have income coming from about five general places (a school corporation, a church, a group of piano students, a group of music publishers, and a university), and many more different specific locations within those (we each get income from the school corp for very different jobs, I've got about a dozen different piano students and a half dozen different publishers who pay me royalties, etc.)
• I can always add more to Rainy Day if I think I need to.  Upping the amount in that account is as simple as diverting the next extra mortgage payment into the Rainy Day Account instead.  Since they're both at ING Direct, it's not a hard thing to do.
• Eliminating the mortgage gives our Rainy Day Account more worth.  Right now, $7,000 is less than 3 months worth of expenses.  As soon as we don't have to pay $500 a month in mortgage principal and interest, that $7,000 goes even farther.  Owning our home outright, to us, is the greatest hedge against a financial catastrophe we can imagine.

Reading a lot of Financial Pundits is great, as is reading any sort of Financial Advice column.  But before you buy anything they tell you, think it through in terms of you and your life.  It may be they're right, but it may also be they're trying to give you Sound Financial Advice in capital letters (and we all know what that means...)