I have two budgets. One is used regularly when things are going well. The other has yet to be used but it is my “slash and burn” budget. It is a back up plan that would be put in place immediately if something bad happened to us financially. My regular budget is a combination of needs and wants. There are plenty of things in it that I could cut out right now but don’t want to give up. This is a luxury I have considering our current income levels and expenses. Planning for the worst case scenario now can help save some anxiety later – which I’m always looking to reduce.
Isn’t one budget hard enough?
I get it, no one likes budgeting. A colleague once told me to call it something different because it makes people feel bad. You know what feels worse? Poverty. Budgets aren’t bad on their own. I wouldn’t want to work for a company that didn’t have one. My toddlers could probably figure out how to balance one better than some elected officials. I think they get a bad rap because it involves discipline.
A budget can (and should) include things you enjoy. My regular budget does. I have a few items in my budget that aren’t necessities but I really like them. If I lost my job the fancy skin care and organic shakes will be the first to go but right now they get to stay. My health is one of my top values and spending some money on it feels fine. I spend less on things I don’t care about to make up for it.
But I’m fine!
Most people are not financially independent. Typically everyone has some outside influences on their financial situation. Stock markets crash, employers let people go and if you are self-employed your clients could leave. This fact is unpleasant and means very little about you as a person. Some of my favorite people on the planet have been laid off, fired, broke etc. Sometimes I think I’m just more prepared for it. My slash and burn budget is the potassium iodide, duct tape and tin foil hat for my finances. Side note – I 100% believe more Americans are prepared for the zombie apocalypse than a job loss.
How to begin…
First, you need an ordinary budget and if you don’t have one I can help you get started here. Once that is established you can start ranking your expenses. My top spot goes to things in the budget that keep you alive. We all need food, clothing and shelter. My mortgage is fixed so that payment is included in my budget. I also know the value of my home and that I live in an expensive part of the country so if things were really bad that could be adjusted. Same with food and clothing. The amount spent on these would not be what it is now but I know how to find deals on children’s clothing and have lived on a pretty measly food budget before.
That’s no fun, what’s next?
Second, and less exciting than basic needs are things that will keep you out of jail. There are some surprising financial mistakes that can get you arrested. If you owe child support, alimony, tickets, court fees or fines (even for misdemeanors) a warrant could be issued for you if you neglect them. It’s important to know the rules in the state you live in. Once that cycle starts it is very hard not to repeat once you are free.
Next, you need to make sure you can pay your debts. Federal Debtors’ prison hasn’t been around for over 100 years. In most cases you can’t get thrown in jail for not being able to pay your bills. Things can get really bad for you though – especially if you have federal student loans or owe taxes. The government has a lot of tools available like wage garnishment and withholding refunds or benefits that other lenders don’t. However, other lenders can sue you and make your life hell so we want to avoid that. Also, having a bad credit score isn’t the end of the world but it does take some time and resources to fix it. If you are in a bad spot know the numbers for your lenders and reach out as soon as possible to work with them when you fall on hard times.
Work Work Work
The slash and burn budget will also include things that keep you working. If you are in a dual income household and one person loses employment it is very important to keep the other person working. This will probably include transportation. See if public transportation is cheaper or if you can go from two cars to one. If the working family member didn’t carry the health insurance before but has access you will want to make that switch.
When there are very young children in a single parent home child care costs may need to stay in the budget. This is the case if the goal is to find a new job as soon as possible. If there are other options like one parent not returning to work or a relative to help it could save hundreds or thousands per month. If you are solo and unemployed or underemployed you will want to keep your transportation in case you get an offer.
It’s important to keep the lights on next. Utilities are an area that you can typically reduce but not eliminate. Reducing your electricity usage and adjusting the temperature can save you a lot of money. There are plenty of tips on ways to save on energy costs that are worth learning about even when things are good. You will want a phone for emergencies but will need to lose the pricey data plan and maybe switch carriers.
Taking care of your loved ones
If you have older relatives, children or pets they might have some unique expenses that you will need to factor in. Keeping your family healthy is important so know what the costs are for their needs such as diapers, medication and pet food and include them in this budget. If you have life insurance and your family is not able to take care of themselves yet it is a good idea to keep paying for that as well. Health insurance is a big deal too. Insurance is tough because you pay for it hoping you won’t need it but I consider it a necessity.
What gets eliminated
Your situation might be different but these items would get cut from my budget:
- Child Care/Preschool
- Cars (go from 2 to 1)
- Take out / Restaurants
- Gym Memberships
- Subscriptions (ex. Amazon Prime / Netflix)
Why do this at all?
I hope that I never have to use this budget but at least I know what the minimum amount of money I need to have in order to get by. A lot of times our expenses grow right along side of our income but some of us can probably remember a time where we ate cereal for dinner or didn’t “vacation” and we survived. The term “slash and burn” is an agricultural term that means exactly what it says. Areas are burned down to clear space for other activities. It isn’t sustainable or desirable and neither is this budget. It gets you by and can be put away once you get back on your feet.
Do you have a budget yet? How much could you live on if you had to cut back? Do you know that you have to go for the brain if attacked by a zombie? Comment below with your thoughts!