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If you experience job loss or any other MAJOR financial emergency in your life, read this guide to find out EXACTLY how to handle your money.
And make sure to grab your FREE budget template to make your own EMERGENCY BUDGET TODAY!
Table of Contents
Do You Have An Emergency Fund?
Most traditional financial advice tells you to save 3-6 months of expenses in an emergency fund to protect against things like job loss and major emergencies. I tend to agree, and might even recommend MORE (up to 12 months) if you expect a MAJOR life event coming up (job loss, moving, quitting).
But the problem is nobody ever talks about how you should USE that emergency fund if the time comes.
We all know that life would look different if our income went away, but not many people have a plan in place for when that happens.
And if you happen to get quarantined for 14 days, or worse yet, if your job closes for a month, how should you handle your finances?
That’s why I created the “Emergency Budget“, to give you a clear-cut plan for managing your finances when a financial emergency happens.
What Is An Emergency Budget?
An emergency budget is a budget that you set up when you need to cut out ALL unnecessary expenses in order to survive. It is something that you should have in place as soon as possible, as emergencies don’t wait until you are prepared to occur.
Emergencies that could cause you to switch over to your emergency budget are job loss, major home damage, unexpected medical expenses, the IRS knocks on your door, an outbreak of a highly contagious flu-like virus that is causing the entire world to panic and forcing you into a mandatory quarantine, or any number of high dollar emergencies.
If you find yourself in one of these unfortunate circumstances, you need to be prepared.
How To Create An Emergency Budget
First thing’s first…you have a budget, right? If not, I got you covered, you can grab my FREE Budget Template real quick. Then read through my Complete Guide To Budgeting for help putting together a budget that WORKS!
Now, make a second copy of that budget template, and we’ll get to work on stripping away all the unnecessary items. We’re going to create a BARE BONES budget for you to live on so your emergency fund lasts a LOT longer.
I suggest sitting down with your significant other to come up with what stays in your budget, and what gets tossed to the curb. Here are some general rules to follow when creating your emergency budget:
Hit “Pause” On Your Goals
If you are currently paying off debt, or saving toward other big purchases, you need to hit the “pause” button on those goals. For debt, simply pay the minimum payments. You need to focus on preserving your cash, and you will immediately get back to these one you have replaced your income.
In uncertain times, it’s better to have cash on hand and delay your goals slightly for peace of mind.
Convert Savings Buckets To Emergency Funds
If you have savings categories for things like vacation, Christmas, gifts, car maintenance and home repair, I suggest removing those as well. You can live without them while you are in emergency mode.
I even suggest removing car and home maintenance savings because you need the money to survive, and most homes/cars can go at least 6 months without need for maintenance.
All the money saved for those things is now part of your Emergency Fund to help get you through the next few months.
Cancel (or Pause) Your Subscriptions
Cancel any monthly subscriptions that you can live without (yes, including Netflix). You’ve been meaning to do this anyway, so now is the perfect time to go through ALL of those services that you don’t really need, and drop ’em! Any “in a box services” (bark box, stitch fix?), and any extra streaming services (I recommend having AT MOST 2 streaming services. We only have Amazon Prime, and we’re fine)
Don’t know how find and remove all those subscriptions? Have Trim do the work for you. They can find ALL recurring subscriptions and give you a list (for free!). Then just give them a call and pause or cancel the ones you don’t NEED.
Lower Your “Fixed” Expenses
There are certain things you NEED. Namely, food, shelter (and utilities), and transportation. You can’t avoid paying for these, but you can work on lowering these expenses.
For utilities, things like turning off the lights, unplugging unused appliances and devices, run your appliances at night, stop watering the lawn, using less water when showering or washing, wearing more clothing and lowering your thermostat can help lower your bills.
For your bills, now would be the time to shop around for better rates on car insurance, cell phones and internet. You can also have a service like Trim negotiate your bills down for you (as a small cost).
Just make yourself more conscious of how you are using things like water, electricity, heating/cooling, and devices. This is not only a way to save some money, but is an AWESOME way to help lower your consumption and learn how to live on less (trust us, we know about this living in 300 sq. ft.!)
Reduce Or Remove Spending Cash
Depending on how bad the emergency is, I suggest greatly reducing , or even removing the spending cash category. You can’t spend money that you don’t have, and you also don’t want to go broke quicker because you can’t resist the Dorito Taco at Taco Bell.
Again, these funds should be added to your emergency fund, and put toward your NEEDS.
Reduce Your Food Budget
I know, I know, this is not easy at all. But if you lost your job or income for a while, you WILL find a way to remove $50 or $100 (or more) from your food budget, even if you don’t eat quite as healthy while you are dealing with this emergency. No sense in actually going hungry because you “needed” your organic pine nuts.
The CDC recommends storing up 2-week worth of supplies in case of a quarantine, so you might need to make a one-time purchase of things like rice, beans, and other non-perishable items. But other than that, start planning simpler meals and snacks for a while.
Cut Out All Unnecessary Spending
This is a catch-all for all the “Misc” spending you may be doing that you don’t need to right now. Things like Online Shopping, Clothing, Entertainment and Going Out (because, let’s be real, it’s #NetflixAndChill for the next month) can go away for a while.
The goal here isn’t to STOP HAVING FUN, but to simply stop spending money to have fun, make sense?
Bust out the board games, old movies,
Sample Emergency Budget
Ok, now it’s time to see what this could actually look like if you lose your income for a while.
Let’s say you lose your income. Now $4,000/month is gone, and you need to adjust, QUICK!
Here’s a sample budget that shows how much you can reduce your spending to help preserve your Emergency Fund and weather the storm.
As you can see, losing your income can GREATLY impact your monthly budget, and for most people, would send them into a panic. BUT, you have now created an emergency budget and are spending $1,165 less per month!
To put that in perspective, you would drain a $24,000 emergency fun in just 6 months, but with your emergency budget in place, a $24,000 emergency fund will now last almost 9 months!
Now hopefully you would not be without income for 9 months, but it is GREAT to know that you can last 3 months longer without going into debt.
So, if you haven’t already, sit down, talk it out, and put an emergency budget in place. Now, when an emergency arises you can still sleep at night, knowing you have a contingency plan to weather the storm.
What NOT To Do With Your Money During A Pandemic
Now that you know how to plan for this health crisis, here’s what you SHOULD NOT do.
- Do NOT sell off your investments in a panic. You will only lock in your losses. Stay the course, play the long game, and keep investing all the way down, and all the way back up (yes, it will go back up). As a former tax professional in 2010-2011, there were SO MANY heartbreaking stories of people who lost half their money by selling off at the bottom. Please do not do this.
- Do NOT spend TOO MUCH on hoarding supplies. Yes, you need to be prepared. No, you don’t need 1,000 rolls of toilet papers and 500lbs. of food. Leave some for the rest of us.
- Do NOT try to time the stock market if you don’t have extra cash. Yes, people (including me) are saying “stocks are on sale!”. And yes, they are. But if you don’t have a hefty emergency fund in place AND extra cash on top, then you are not prepared to dump extra cash into the market. Just keep your regular investing schedule (every paycheck), and move along.
Use wisdom, discretion, and research on all your money moves, please.
What Budget Apps Allow You To Create An Emergency Budget?
Of course, you can always create your own Emergency Budget using my FREE Budget Template. Whether you print another copy, or use the Google Sheets version, you can make a duplicate budget and put your emergency plan in place.
The only other app I know if (so far) that allows you to create multiple budgets at one time is YNAB.
I personally use YNAB (You Need A Budget), and have put together budgets for multiple scenarios (and years). It’s as easy as going to the settings and selecting “New Budget”.
Then simply label it “Emergency Budget”, and input your BARE BONES expenses. And if you find yourself in NEED of that budget, in the settings just go to “Open Budget” and you’re set!
What If I Don’t Have An Emergency Fund?
Look, I get it. 40% of Americans don’t have $400 saved for an emergency, let alone a full Emergency Fund. At this point, you need to start reaching out to to find external resources to help you weather this storm.
Yes, the “government” is working on helping those who are losing income during this, but if you need immediate assistance, places like a local food bank can help with supplies. Don’t be too proud to get the help you need, during this health crisis (and heck, all the time!), everyone needs to eat and a place to sleep.
As for what bills to pay and what NOT to pay, you need food, shelter and utilities. And if you have debt, you can’t just stop paying that either.
I wont’ write the entire thing out here, as Dave Ramsey has a great article on how to handle debt payments if you can’t afford the entire thing, but just make sure you take care of your family, before anything else.
Don’t Wait Until You Have An Emergency (or Get Quarantined!)
Whatever tool you use, put this plan in place so you know EXACTLY what to do if you find yourself in an emergency. This will help you sleep at night, knowing you have put together a plan that WORKS.
And make sure you start building that Emergency Fund like YESTERDAY. It’s the first step toward Financial Freedom, and the one that can REALLY take your money stress away.
Right now, CIT Bank has the BEST interest rate in their Money Market account, and it only takes a few minutes to open an account.
Open a CIT Money Market Account
Be Prepared, But Don’t Panic!
Yes, things will be VERY tight. But humans have the amazing ability to adapt when the going gets tough, so just know that you WILL make it through, and this budget is NOT forever. Take comfort in know that you at least have a plan in place.
Obviously your family and their health and safety are at the forefront as this medical crisis looms. Take precautions, stay educated, be prepared, but don’t panic.
Comments: Let me know, what else are you doing to prepare for this health crisis? Any ideas on how to best to navigate this uncertain time? Drop me a note below!