CREATING AN EMERGENCY BUDGET

WHAT IS AN EMERGENCY BUDGET?

So, there might be a better name for this, but I refer to it as an emergency budget. This is a version of your budget that would be used in the case of an emergency. It’s basically a completely stripped-down version of your budget with only necessities. All non-essential costs should be stripped out of this version of your budget.

TO DETERMINE HOW MUCH TO KEEP IN EMERGENCY FUND

There are two main reasons that I can think of why it is important to have an emergency budget. The first one is to determine how much money you would want to save in your emergency fund. Most experts say that you should have approximately 3 to 6 months’ worth of expenses in your emergency fund. To do this you first need to determine what your monthly expense are. Creating an emergency budget will help you do this. When you are saving up an emergency fund, you really want to zero in on what your essential expenses are. There is no need to be saving up for dining out at nice restaurants if you are in a situation where you need to rely on your emergency fund to get by for a period of time.

FOR PEACE OF MIND

The other main reason to keep an emergency budget is for peace of mind. It feels good to have a plan in place if something were to warrant cutting expenses to the bare minimum. You don’t want to go through the stress of working on your budget while going through an emergency situation. You can make better decisions by going through the details when you are not in the midst of a stressful situation. This budget is a good resource if the time were to come when you really needed to cut back. It’s a resource to go to so you could get started on making whatever changes need to be made.

LIST OUT WHAT YOU ARE CUTTING IN WORDS

In addition to having the numbers laid out for your emergency budget, it’s a good idea to have a list of specific items that have been removed from the emergency budget. You can use this as a reference to get started on pulling back expenses right away if the need came. For example, the list might say to cancel satellite radio subscription, buy ground coffee to start making coffee at home. Or maybe change your cell phone plan if a lower option is available and cancel streaming services.

These are just a few examples, but as you are cutting items from your budget if you keep a list of those it will make it easier to start making changes. Otherwise, you will need to take the time to compare what is different from your emergency budget to your regular budget. Considering that some time has likely passed it will be much more time-consuming to have to review the details to see what was cut out.

WHAT TO FOCUS ON WHEN PREPARING YOUR EMERGENCY BUDGET

Initially, you might think that an emergency budget would only cut expenses, not add any. However, you might want to consider what additional costs might come up during an emergency. This will help you really dig further to see what else could maybe be cut to help cover any extra costs. For example, say if you are out of work for a medical emergency and you are limited on leaving the house or cooking. You may incur extra costs for ordering takeout food, or maybe additional fees for grocery delivery. If you will have to travel to many doctor visits you might have extra gas expenses.

Of course, there is no way to determine what additional costs may come as a result of your emergency because you don’t know what that emergency might be. But, consider the fact that there could be additional costs that occur due to whatever the situation is so that you really focus on pulling out all of the non-essential expenses.

WHAT IF MY BUDGET IS ALREADY REALLY SCALED BACK

If you are currently living on a budget that you feel is already only covering the essentials, you may think there is nothing more you can do. If you are barely getting by with your current income and have already cut everything out of your budget, you may need to consider how to bring in some additional income. That might mean bringing in some income even for a short time. This can help you be able to save up an emergency fund. The fund can help cover you for a longer period of time since you will not be able to rely on cutting back your expenses.

You also might need to consider if there is something you can do to boost your income for the longer term if you are living on a budget that is extremely tight. It can be very stressful to know that if an emergency comes up, you don’t really have any options for cutting back. Consider the ways you might be able to boost your regular income so that you have a little more wiggle room in your budget. It might take some time and planning, but there are usually ways to increase your income in some way over time.

SOME TIPS ON EXPENSES YOU CAN LOOK TO CUT

Groceries are usually the first place most of us go when we need to reduce our budget. Look at what you are currently spending on groceries to see if you could cut back if you need to. Can you maybe use less expensive meat more often (chicken breast versus ground beef or steak)?  Can you use less meat in each meal?  This works well in things like a soup or sauce where meat is not the main dish. Consider how much you spend on disposable products. This might not seem significant but continuously stocking up on paper towels, paper plates, plastic utensils, plastic cups can be costly.  Especially if you have kids that blow through them like crazy. While this might be convenient, it’s something to consider cutting when you really need to pull back on expenses.

Are you paying extra for faster internet speed or unlimited data on your phone? Again these are a nice convenience, but if they are not necessary, you might find some savings here. Even if you don’t cut your service, try calling to see what offers are available. I have saved money, just by checking the current offerings on data plans for my cell phone. So, in an emergency, it might be a good time to check if you haven’t already. Things like vacation savings, gym memberships, expensive wine, streaming services, anything that you might have in your budget that is not a necessity should be considered. Remember this is only to get through a rough time.

BENEFITS OF CREATING AN EMERGENCY BUDGET

As I mentioned earlier, knowing that you have a plan in place for an emergency can help you feel more at ease in your everyday living. It’s also a good exercise to go through to take a really good look at what you are spending on. You can use this as a tool if you need to cut back expenses for a short period of time. Maybe you are trying to get out of debt or build up your emergency fund. Or maybe you just want to save up for a really nice vacation. Having a budget that strips out everything that is not necessary, can help you find ways to cut back in order to achieve whatever financial goals you are currently working on.

Thanks so much for checking in! If you would like to hear the podcast version of this topic to check out Lola’s Frugal Life Podcast! Also, be sure to check out my other blog posts on this site!

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