How To Create An Emergency Budget

How To Create An Emergency Budget

Do you have a financial emergency plan?

Any good financial coach or writer will tell you that one of the first things you need to do when you start taking control of your finances is to build up an emergency fund. I wrote about what an emergency fund is and what to use it for here. To sum it up, your emergency fund is for unexpected expenses that pop up due to unforeseen circumstances. When those circumstances arise, you can then decide to tap into your EF. When a circumstance arises that has long-term financial consequences, you may also need to resort to switching to your emergency budget.

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, you lost your car in a street race for pink slips, freak gasoline fight accident, 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

Ok, so now that you have gone through my budgeting basics and created a budget, you’re all set to create your emergency budget. 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:

  1. Get rid of your savings buckets. If you have savings categories for things like vacation, Christmas, gifts, car maintenance and home repair, I suggest removing those first. You can live without them while you are in emergency mode. I even suggest removing car and home savings because you need the money to survive, and most homes/cars can go at least 6 months without need for maintenance.
  2. Reduce or remove spending cash. Depending on how bad the emergency is, I suggest greatly reducing , or even removing this 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.
  3. Reduce your food budget. I know, I know, this is not easy at all. But if you lost your job, you WILL find a way to remove $50 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.
  4. Find alternate transportation. You’ve been meaning to take the bus or carpool for a while now, what better time to make the switch than when you can barely afford to drive. It may be a pain in the rear, but you need to save that gas $$$ to survive.
  5. “Know where your towel is“. For those who aren’t nerdy enough to get the reference, it’s just a way to make sure you “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. And hey, at least the planet is not being destroyed by Vogons.

Sample Emergency Budget

Item Regular Budget Emergency Budget
Income  $        4,000.00  $              2,500.00
Mortgage  $        1,500.00  $              1,500.00
Electric  $             75.00  $                  75.00
Natural Gas  $             75.00  $                  75.00
Cell  $           100.00  $                100.00
Internet  $             45.00  $                  45.00
Car Insurance  $           100.00  $                100.00
Student Loan  $           200.00  $                200.00
Food  $           300.00  $                240.00
Gas  $           200.00  $                125.00
Date  $             80.00  $                      –  
Spending Cash  $             60.00  $                      –  
Pet Food  $             40.00  $                  20.00
Sinking Funds    
Water/Sewer  $             60.00  $                  60.00
Garbage  $             30.00  $                  30.00
Car Maintainence  $             50.00  $                      –  
Vday/Anniv.  $             50.00  $                      –  
Christmas  $             50.00  $                      –  
Birthdays  $             30.00  $                      –  
Vacations  $           100.00  $                      –  
Beauty  $             35.00  $                      –  
Leftover  $            820.00  $                  (70.00)

As you can see, job loss 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 instead of being $680 short every month, you are now only $70 short. To put that in perspective, you would drain your $1,000 emergency fund in less than two months and have to start missing house payments, but with your emergency budget in place, your $1,000 emergency fund will now last 14 months! 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.

Comments: Do YOU have an emergency budget in place? Have you ever had to use it? For those without one, have you ever had to deal with an emergency that impacted your monthly budget? How did you deal with it? I wonder what Nicholas Cage did when the IRS knocked on his door….?


  1. I don’t have an emergency budget established, but I have thought through what my budget would look like in the event of an emergency. I guess I’d just create the budget when/if the time ever came.
    Jason recently posted..1-Year Blogoversary Giveaway! Apple iPad Mini, $100 Amazon GC, $50 Paypal Cash!My Profile

  2. We have an emergency budget, which consists of us eliminating all extras and would bring us to around $2K per month.
    Michelle recently posted..Spending, Life, Income, Food Updates…My Profile

  3. This is a great idea! We basically live off of one of our incomes so I suppose that we have an emergency budget too. If one of us lost our job, we would do just fine…we just wouldn’t be able to save as much. Hopefully that never happens~!
    Holly@ClubThrifty recently posted..Sir John Templeton’s Definition of DiversificationMy Profile

  4. It’s always a great idea to have a backup budget. I agree that you should always know how much you can afford on one income. Great post!
    Adam recently posted..A Review of Dave Ramsey’s Total Money Makeover – Baby Step 2: The Debt SnowballMy Profile

  5. No, but this is definitely something that we should do. Our problem right now is just having a plain old budget since it seems like we have yet to have a “normal” month-heck, week!

    However, we do know the resources available in our community, in the event that we ever really need help making ends meet, and we have enough dry food (beans! rice! oatmeal!) to live on for about a month if we really needed to.
    SWR recently posted..Bi-weekly budgetingMy Profile

    • The thing about budgeting is that you will most likely NEVER have a normal month. You need to review your upcoming month before it begins, and talk about the unique expenses for that month (activities, birthdays, etc…). Our budgets changes every month, because there are so many different things from month to month.

      Sounds like you have the Dave Ramsey diet available, which is awesome. (RICE AND BEANS!!!)

  6. you also have the option of selling some stuff to help with a short term change in budgets. Most of us have stuff we can live without and get some cash for it.

  7. I don’t have one but also haven’t needed one. If an emergency popped up I would do many of the things you had mentioned and cutting savings temporarily would free up a large chunk of my budget.
    Lance@MoneyLife&More recently posted..Be Prepared for Weather EmergenciesMy Profile

    • That’s sort of a plan 😉

      But yea, cutting savings and paring it down to the bare necessities (bear necessities…? (now the song is stuck in your head!)) is the basic plan.

  8. We’re pretty much in the same boat as Holly – living off one income is totally doable with our current spending, we just wouldn’t be saving as much or paying debt off so fast.
    Mrs PoP @ Planting Our Pennies recently posted..Lame Friends and Sunk CostsMy Profile

  9. When I get my flippin sweet budget set up, I will make a bare bones one as well. You just never know what might happen. Best to be prepared.
    Kim@Eyesonthedollar recently posted..What Happens Before and After Foreclosure?My Profile

    • Your flippin sweet budget will be flippin sweet and up in a few weeks 😛

      I like what Kurt said, just put “optional” next to the items that you would remove, and you can remove them if the time ever comes.

  10. We don’t currently have an emergency budget, but it makes a lot of sense to have one and I think I’m going to run some numbers just in case. You can never be too prepared for a financial emergency. I think the first thing to go for us would be the cell phone budget.
    KK @ Student Debt Survivor recently posted..Prepared or Panicked: Is Stockpiling a Waste of Money?My Profile

    • It’s a good exercise, and really gets you thinking about what’s important in case something happens. You might even cut something out of your budget that you finally realize is a waste of money.

  11. I guess it would be silly if I said we didn’t but we did honestly. Since I had to go back to school we made sure that we had the budget we were currently using an emergency budget just in case something happens. Now that I am done school and making more money we still have that budget. We make sure that we can live on one income and the lower one of the two. It’s a smart thing to do and it’s peace of mind. Great Post.
    Canadian Budget Binder recently posted..How We Renovated Our First House For Under $25,000My Profile

  12. I think it’s a great idea to divide your spending in your ‘regular’ budget between what I call “Necessary” and “Optional” items. Then your emergency budget is sort of built in. If the emergency hits, you scrutinize those Optional items and dial them back as much as possible, even to zero. So yeah, I’m with you: Whatever technique or lingo you want to use, having an updated emergency budget “on the shelf” is a good idea.
    Kurt @ Money Counselor recently posted..3 Diamonds and a Dog #12My Profile

  13. Our family currently has a 9 month emergency fund. With that we also have our emergency budget set. Thankfully with job loss with both my husband and I, we have not touched our emergency fund, but have used our emergency budget.

  14. We’re semi-living on this now…We’ve trimmed in every area possible but still have a slight ”life” allowance (occasional dinner out, gifts) but VERY much trimmed from where we were!
    Catherine recently posted..Paying More For Loyalty?My Profile

  15. I have a general savings that also serves as an emergency fund. In other words, I don’t plan on touching the initial principal unless there is a dire reason to do so. p.s. what the heck is a Vogon? 🙂
    Jennifer Lynn @ Broke-Ass Mommy recently posted..Muddled Monday with Some Link Crushin’My Profile

  16. This is a great concept, and it’s one I haven’t considered before. I actually would cut out the internet too. Shocking I know, seeing as my computer is like an extra limb. However, if someone has a smart phone they can use that for awhile and pop into a coffee shop and get a $2 tea and use the internet for a few hours and it would still be less than a month of internet.
    Cat Alford recently posted..Splurging & Saving: A Colonial WeddingMy Profile

  17. We have been doing a version of this “emergency budget” for a good portion of the year, but man, is it exhausting.. This kind of budget intensity really sucks the joy out of life, but it is damn productive!! We have lowered the intensity a bit in recent months, and are still kicking butt, but try to leave a little bit of wiggle room in the process..

    Jefferson @SeeDebtRun recently posted..Consumer Driven Health Plans – A Good Option?My Profile

    • It really is intense. We tried to switch to super strict emergency budget when my wife left her job to stay at home, but we went a little nuts, so we loosened it up just a little. But you guys are going to be SO happy once you’re done 🙂

  18. If he was smart, Nicholas Cage didn’t answer the door….
    AverageJoe recently posted..Taking a Body to the Morgue: A (Surprisingly) Bad First Day Of WorkMy Profile

  19. Jason Clayton | frugal habits says:

    This post proves why it is so important to have some savings built up. Even on a emergency budget (and I agree with your choices and $$) unemployment won’t add up to even paying for the mortgage. A couple month emergency savings account is vital.
    Jason Clayton | frugal habits recently posted..12 Smartphone Apps that will Save you MoneyMy Profile

  20. Emergency budgets aren’t talked about enough. This is a really good article. We’ll be living off our emergency budget until New Years because, we’re hoping to be debt free by then.
    Jackie recently posted..How to Help Your Husband Thrive During UnemploymentMy Profile

    • Debt free for the new year would be awesome. I think everyone could benefit from a little false scarcity to really put things in perspective. I may need to start a challange here soon…

  21. My wife and I have a good feel for the areas we’d cut if we had to in an emergency, but we don’t have it written out. This is a good tip, and I’m going to add it to my list of things to do this fall.
    Rich@MoneyWisePastor recently posted..What’s Your Scariest Money Story?My Profile

  22. I just consider my Fixed Expenses my emergency budget and throw in an extra $100 for food. My most important bill is rent. Then utilities. Then food, etc. There are enough food banks that I think I could get buy long enough in an emergency situation.
    leslie recently posted..(Another) Budget Spreadsheet Template: NYC LivingMy Profile

  23. An emergency budget is definitely one that you have to restrict almost all free spending. Even nice-to-have items should come off your budget in an emergency. No cable, no eating out, no “fun”. Hopefully the need to use an emergency budget is short lived but it’s good to have one in your back pocket.
    Daisy @ Money Smart Guides recently posted..12 Months of Goals: NovemberMy Profile


  1. […] iHeartBudgets has a great post about emergency budgets, that coordinate with your emergency […]

  2. […] IHeartBudgets- How To Create An Emergency Budget! Very Important to  Do! -Mr.CBB […]

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  6. […] case of job loss or any other major emergency. So, when planning out your home purchase, mock up an emergency budget, and ensure you could survive on that for 3 to 6 months on your […]

  7. Kathleen December 2012 Net Worth | Refinance America says:

    […] case of job loss or any other major emergency. So, when planning out your home purchase, mock up an emergency budget, and ensure you could survive on that for 3 to 6 months on your […]

  8. […] There are much more refined approaches to creating an emergency budget. Here’s a blog post that went into great detail or this one that had a nifty calculator. Try them out and figure […]

  9. […] I Heart Budgets offers a few other suggestions for building an emergency budget: […]

  10. […] I Heart Budgets offers a few other suggestions for building an emergency budget: […]

  11. […] I Heart Budgets offers a few other suggestions for building an emergency budget: […]

  12. […] find ways to be frugal in each of these categories. I Heart Budgets recommends starting with food, which can vary quite a […]

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  17. […] 3) Make a basic budget, with ONLY the necessities listed. That means, Food, Shelter, Transportation, Clothing. No extras, no eating out, no entertainment (until your situation stabilizes). Do everything in your power to say “NO” to anything outside of this budget. Check out my “Emergency Budget” post HERE […]

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