When the economy is shaky and you’re worried about losing a job, it’s scary. Maybe you’re a government employee and you’re facing another potential government shutdown. Maybe you see layoffs coming at work. Whatever the case, it feels awful. You might lose sleep. That worry in the pit of your stomach just doesn’t want to go away. You might even lose your appetite. All around, it sucks.
I’ve been there, and I’ve been there a few times over the years. Do you know what helped me sleep better each time? I ran some numbers and brainstormed some logical steps, should the worst happen and my husband or I was laid off.
Here’s how to make a personal budget emergency plan.
Step 1: Start with a basic budget.
What does your budget look like now? Hopefully you already have this together, but if you don’t, check out my posts on the 50/30/20 Budget and the Basic Budgeting methods. These will help you put together a basic budget together so you can see what money comes in and goes out today.
In order to plan for what money you might or might not have tomorrow, you need to know where you’re at today.
On your family budget, make sure all your income is listed. Break it out by paycheck or by week. Designate how much comes in from each person. Total it up by person and by period.
Next, list your expenses. List all the fixed household expenses in one area, your loans and credit card debt in another section, and your variable expenses in a third section. I like to do this in a budgeting app (I’m a big fan of the free version of Every Dollar!), or you can do it in an Excel spreadsheet.
PRO TIP: I like to set up the “auto sum” function in Excel/Google Sheets so it totals up each section for me and then goes back to make adjustments to my ultimate over/under budget amount. (Plus if you do that, it makes step 2 so much easier….)
Step 2: Run your budget contingency plans.
Run some “what if” scenarios. Copy and paste the budget you just made over into a new Excel tab in the same workbook, or on Google sheets, if you’re using that. If you’re using an app like Every Dollar, copy the budget into a new month so you save your original budget.
Now make some adjustments in your new “what if” budget. What if someone’s income was cut in half? What if one of you was forced to live on unemployment? (Take a look at how your state calculates unemployment payments, and guesstimate where you’d net out.) What’s the income situation you might be faced with?
After you plug those new numbers in, rerun the calculations on your budget. What’s the new total you might have to live off of?
Step 3: What expenses COULD you cut out to make the numbers work?
Could you adjust your cell phone plan or your TV entertainment? We could quickly and easily cut our our streaming services. If you still have cable, maybe you could flex down to a lower package or cut the cord all together. (If it’s an either/or choice, $14 for Netflix is a lot better than $100 for cable!) Could you get by with one of those slick sticky antenna panels behind your TV so you could get local news over the air if you want those local stations?
While you’re at it, does your health club have an option where you could pause your membership for a month or two? Could you switch over to one of those on-demand plans like the Beach Body streaming service, or use a workout game on the family gaming system? I found several yoga workouts that are free with Amazon Prime Video the other day. Figure out how you can stay moving (it helps with stress!!) for less.
If you have student loans, could you go into a temporary forbearance state? This essentially pauses your payments in the case that the loan holder loses a job. Go to your lender’s website and see what they do for a job loss.
When you’re paying off debt, do you have any that are smaller, that maybe you could knock out entirely in short order? That would give you a little more breathing room. Look at your two lowest balances. Which one would make more room in a future budget if it was paid off? Is it realistic that you could get it down to zero in one or two months?
Do you need to make plans for childcare? How long could you stay with the same daycare or after-school care options (and expenses) before you’d need to cancel those and depend on the non-working spouse? Are there any other options you might have?
If one of you isn’t at the office, guess what – you’re not eating out at lunch or swinging into the fancy coffee shop! Bring that line down accordingly. You also won’t be commuting back and forth, so your gas and parking (if you have to pay) would go down, too.
Are you eating out a lot now? Look back at your last month or two of bank statements. How much did you spend at restaurants and on happy hour? Cut out the bar drinks and the restaurants. Learn to cook from home, and start meal and grocery planning.
Do you fund your kids’ hot lunch accounts at school? What if they took lunch to school more often? What if they made a 100% switch over to brown-bagging it? How much could you save? (For us, that’s $3 x 2 = $6 a day for two elementary school kids!)
Step 4: Would you incur any new expenses you don’t have today?
We’re basing this budget on your take-home pay, which most likely is calculated after your company pays for part of your health insurance and you pay your monthly premium through that paycheck. What alternative health insurance choices would you need to make?
Perhaps you’ll need to look at the cost of bringing one spouse over onto the other’s employer-based insurance plan. Maybe it’s one spouse and the kids that need to move over, or maybe you’d need to completely switch everyone over. COBRA options are typically very expensive! If one of you doesn’t have insurance through work, you’ll want to look up some independent brokers to see what your options could be.
Maybe the spouse with the at-risk job has one of those cool employee benefits that pays for or discounts your health club fees. Guess what you’d need to either start funding personally or cut from the budget!
Step 5: How fast could you save an emergency fund if you started today?
If you started scaling back on all your variable expenses, how much could you save up in a month? In two or three months? Are there any extra payments coming your way soon, like an annual bonus or a tax return? Could you squirrel those away into a savings account so you have some emergency padding?
Maybe you stop paying extra on your debts for a while. Don’t send the kids into panic mode, but start reprioritizing your budget while you still have a full income. Could you cut out one of several extracurricular activities and bank that monthly fee instead?
Last but not least, don’t panic.
I get it. It’s scary. With so many Americans living paycheck to paycheck, there’s a real honest-to-goodness fear out there of what would happen if…. But take a deep breath and run through the exercises here. You may find that you’ve got surprisingly more room than you thought you did. Hang in there.