We talk a lot around here about budgets. But what about unexpected financial hits? How do you plan for those?
While you can’t account for every potential scenario, there are ways to prepare for the unknown without knowing exactly what that is. This is what experts call a crisis budget.
Before we dive in, this advice really is for the person who has already gotten the hang of budgeting under normal circumstances. If you need help with those skills, you may find our Third Thursday financial courses a great start!
Think of a crisis budget like a fire drill–you want to know your escape route before the fire strikes. It’s not meant to be a doom-and-gloom outlook but rather just a way to be as prepared as you can be for something that hopefully won’t happen.
The first step of being prepared for disaster is to have an emergency fund. Experts recommend a savings for this of $1,000 to $3,000, but obviously, the higher this fund is the longer you could last on limited or no income. Here are some tips for building your savings if you don’t have this yet.
As part of basic budgeting, you have a list of your income and your expenses each month. As part of crisis budgeting, you really zero in on your priorities. If your income was drastically cut for whatever reason, what is essential to your budget?
Under normal circumstances, maybe you can afford streaming services and unlimited data on your phone plan. But in a crisis, perhaps those are things you can do without.
Perhaps your monthly budget allows for so much in groceries each month, but in a crisis, how could you simplify your meal planning to something more basic?
These are the things that are helpful to consider before you really need to. If you are really clear on your priorities, and have done the math to see that you will be able to financially float for a bit, that is one less thing to worry about if you do take a financial hit for some reason.
