How To Build An Emergency Fund On Middle Class Income
An emergency fund refers to a financial allocation usually in the form of a savings account that’s intended and reserved for emergency purposes. These are the unforeseen expenses like health and academic emergencies, unemployment, home repairs, car repairs, and travels, among others.
When you have this fund set aside, you won’t have to burn a hole in your savings account if these contingencies happen. You can stay financially healthy without falling into debt. Rather, you have an emergency fund to cover those expenses.
Emergency Fund 101
While it’s going to be more challenging than those who live on a higher income, building an emergency fund is still doable with the little you have. It doesn’t matter how much you put in as long as you do so regularly. Of course, make sure that whatever you’ve placed for the fund will be spent only for emergencies.
The key isn’t how much you have but how practical you are with your expenses. Here are some financial tips you can use:
- Calculate The Amount You Want To Save
There’s no uniform approach as to the amount you have to save for emergency purposes. The amount will also highly depend on your needs, lifestyle, and even your expenses.
Hence, it’s for you to sit down and calculate the amount you want to save. When you have an annual goal, you can divide that into 12 months. This will give you an idea of the amount you have to set aside monthly for your emergency fund.
Even when you’re living on a middle-class income, when you make it a point to go through this process, you can include emergency fund expense as a part of your payables, so you can cover it first before moving on to the other expenses on your budget.
- Allocate Your Savings First, Not Last
One of the most common mistakes that can happen when you’re living paycheck to paycheck is feeling as if you don’t have enough money left to save simply because you made savings an afterthought. Rather than do things this way, it’s best to make savings a priority. This means you always put an amount for your emergency fund at the top of the list and never as a last resort.
If you leave it until the last, then this could put you in a never-ending spiral of not having anything left to save. There’s a danger in that kind of mindset because you’d always be relying on your next payday.
- Keep The Change
Spare change counts! At the end of the day, maybe you have spare change accumulated from all those little expenses you had to pay for. Set it aside on a little jar, then bring it to the bank to add to your emergency fund.
It may not add up to much, but when you think about all those little amounts you put toward your emergency fund, it’d enable you to reach your set amount faster. Who knows, you may even be able to put in more than what you’ve initially intended to do so.
- Forget About Your Savings Account
Now that you’ve opened a savings account for your emergency fund, it’s time for you to forget it exists. This means not thinking of it as a place for you to pull in some cash to buy a new dress or whatever is on sale. Just because you’ve almost achieved your savings goal for your emergency fund doesn’t mean you can remove a few dollars for a ‘just now’ expense since something you’ve long wanted is on sale or there’s a special occasion or holiday.
Forgetting about it means you’re simply letting the amount sit there. All you do is automatically put in an amount after each payday without withdrawing anything. If you don’t have an emergency, then don’t touch it.
As you can see, having an emergency fund even with your middle-class income is very doable. It’s not impossible for as long as you set your mind to make saving a priority. It’s also not about depriving yourself of a few of the expenses here and there to keep you happy, but it’s about living a frugal lifestyle to ensure this enjoyment only comes after you’ve already saved for your emergency fund and other necessary expenses.
With a fund like this, you can save yourself from the financial turmoil of having to rely on your credit card or a loan, should a contingency come. Consider the ideas mentioned here as you keep a portion of your money for future use.