Although the terms “emergency fund” and “rainy day fund” may be used interchangeably by some, there can actually be a difference. Typically, a rainy day fund is money you set aside for smaller unexpected expenses whereas an emergency fund is for larger life changes and major expenses. As a result, you may end up tapping and refilling a rainy day fund multiple times a year but would (hopefully) not need to touch an emergency fund for several years.
As we’ve discussed, it's typically advised that an emergency fund consist of three to six month’s worth of expenses. In contrast, a solid rainy day fund may hold a few hundred dollars to a thousand dollars. By having both of these funds in place, you’ll help protect yourself from a greater variety of financial challenges and provide yourself with more money security overall.