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Pay Down Your Debt Challenge

Why You Need Both a 'Rainy Day' and an Emergency Fund

Here's how much to set aside for those surprise expenses — big and small

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When it comes to savings accounts, you've probably heard financial advisors and others talk about the importance of having a "rainy day" fund or an emergency fund.

See also: Find extra money to pay off debt.

The point of having a cash cushion, of course, is to lessen the financial blow of dealing with life's unexpected challenges — anything from a car that breaks down to health problems that turn costly.

Even though people use the terms "rainy day" fund and emergency fund interchangeably, these two savings accounts are different in their size, purpose and benefits. So you actually need to have both of these safety nets, in addition to the retirement funds you're currently building.

Here's an explanation of the key differences between a "rainy day" fund and an emergency fund, and some information on how each account can help you and your family.

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— Photo by: Image Source/Getty Images

Size of Accounts

As a general guideline, you should stash away between $500 and $1,500 to have an adequate rainy day fund.

A rainy day fund is smaller than an emergency fund, which typically ranges between $3,000 and $10,000. In fact, some people may need to amass an emergency fund totaling tens of thousands of dollars in order to create proper economic security.

Next: The benefits of extra savings. >>

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