Astute savers may have already planned their emergency fund, but have you planned your emergency budget?
Emergency Budget Tips
When an emergency arises, people are often plowed into unexpected and turbulent times. The coronavirus outbreak has caused the economy to decline, and many Americans have lost their income from business closures. Despite the government’s attempts to revive the economy by distributing aid to individuals and businesses, people are finding themselves in an emergency situation regarding money particularly.
Nearly all financial advisors will agree that everyone should have an emergency fund. This should be at least three months’ worth of regular income, but ideally, six months, set aside in an accessible savings account.
What is an Emergency Budget?
Most people have a budget that they adhere to weekly or monthly, but an emergency budget prioritizes survival above all else. It focuses on you and your family’s basic needs and financial responsibilities and eliminates all non-essential expenses. Any unspent money should be added to the emergency fund.
Why do I Need an Emergency Budget?
Using your emergency funds cautiously is essential to maintain financial health during uncertain times. It can provide better financial flexibility and allows you to make your money go further. This is so important for people who are under financial pressure, and it needs to be addressed, simply because of the unprecedented nature of the coronavirus economy.
How to Make an Emergency Budget
1 Write Down Your Budget
There’s no doubt that you have a good idea about your outgoings, but a good rule of thumb is to write down exactly what’s coming out of your bank account/s. Doing this in an emergency will ensure you prioritize what’s a necessity and what is non-essential. Use a spreadsheet or online tool for a more organized list, or even just use a pen and paper.
2 Assess Your Expenses
Go through your paper or online statements for the last three months and start listing all your regular payments. These are likely to take the form of standing orders and direct debits. Then assess where else you spend your money, which has likely changed significantly recently.
During an unexpected event, when you are trying to make ends meet, you need to focus on the expenses that are required for your survival and matter most. These sustenance items will be at the top of your budget and prioritized before any other payment, for example, shelter, food, water, insurance, rent/mortgage, utilities, financial loan repayments, basic phone/internet services.
If you are working and need to travel to your job, car expenses or travel costs will also need to be factored in. Other priority expenses will depend on personal circumstances, for example, childcare or medical expenses.
3 Cut Out Non-Essentials
Determine what items are luxuries and what are non-essential to get you through the emergency period. Obvious expenses will be things like take away food or trips to the theatre but look at your grocery budget and try to cut out expensive, high-end items.
If you have any memberships or subscriptions, you should consider canceling these for the interim. Some companies may also support you and offer discounts or schemes. Check your contracts to see if you’d get a penalty first and negotiate freezing agreements. Examples include gym memberships, cable, Netflix, etc.
4 Downgrade Items
If you feel that you need to keep hold of some luxuries, consider whether you can downgrade or downsize instead. Do you have a car that you can sell in exchange for a cheaper one? Do you have a cable or Netflix package that is going to waste because of unwatched channels that can be downgraded? If you lease an apartment, is it feasible to move to a more economical one, at least for a while?
These are just examples, but there might be other expenses that you can reduce without sacrificing your lifestyle significantly
5 Contact Providers
Seek support from your providers. Some essential expenses like rent/mortgage, utilities, loan payments, etc., could be discounted or payments deferred. Check for added interest payments and assess if you can afford future repayments.
Although it might be too late to save for your emergency fund, it’s not too late to set an emergency budget.
There are plenty of emergency budget calculators on the internet to guide you and make calculations easy.
If you are having financial difficulties and would like to talk to someone, contact Debt.org, who provides advice on financial help for those impacted by COVID-19.
What’s at the top of your emergency budget list? What expenses have you quashed? Please share your ideas and tips in the comments section below.