How To Create An Emergency Budget


About a month ago, my husband and I sat down and created our first emergency budget.  It was a little disconcerting since we’ve never experienced a global pandemic before, but I knew that going through the exercise would give us peace of mind.  We have always maintained an emergency fund, which represents 3-6 months' worth of expenses, but we have never gone through our budget and elected what is truly needed during an emergency.

We started with our fixed expenses.  My definition of a fixed expense is anything with a date attached to it.  Your mortgage, utility bills, debt payments, cell phone, etc.  Fixed expenses also include yearly expenses, like your Costco membership, car registration, and security system payment (we have these lumped into sinking funds, which I talk about in my budget blog post).

Go through your fixed expenses and determine what you actually need to operate your day-to-day life.  What do you need to keep a roof over your head and keep the lights on?  For us, these expenses were:

  • Mortgage
  • Daycare (paying a holding fee for now)
  • Insurances
  • Utilities
  • Internet
  • Cell Phone
  • Yearly Fees (Costco, Amazon, security system, and a few others)

Allocating your emergency budget

Now, you might be asking, “Jill, why are Costco and Amazon considered necessary during an emergency?”  To us, these are essential services.  We buy a lot from both companies, AND they offer delivery, which is super beneficial during a pandemic.  We are opting not to go into grocery stores right now, and instead have all of our groceries and household supplies delivered to our door (or picked up).  To cancel these memberships would not feel right, and would cause anxiety, so for that reason, we’re keeping them in our emergency budget calculation.  That’s the beauty of creating your family’s emergency budget - you get to decide what’s best and most sensible for your family.

Our next step was looking at our variable expenses.  Variable expenses do not have dates attached to them.  The variable expenses we deemed necessary during an emergency were:

  • Groceries
  • Household Supplies
  • Car Gas/Maintenance

We assigned “emergency” dollar amounts to these variable expenses.  Again, the purpose of this exercise is to think:  “If we both lost our jobs, and had to keep the lights on, how much would that cost?  How long could we get by?”

The next part of this exercise was looking at cash reserves.  We took our emergency fund, and other cash savings buckets, and added them all up to get a total.

We took our cash total and divided it by the total amount of our emergency fixed and variable expenses. Using example numbers, it looked like this:

Monthly Fixed Expenses:  $2,000

Monthly Variable Expenses:  $1,000

Total Monthly Budget Needs:  $3,000

Total Cash Reserves:  $15,000

$15,000/$3,000 = 5 months of coverage with no income.

Identifying the "non-essentials"

So now we know that if our income completely stopped, we would be OK for 5 months operating on our emergency budget (again, these numbers are for example purposes).  We stripped away non-essentials like gifts, Christmas funding, clothing, makeup, toys, non-essential memberships, and non-essential house maintenance (I mean, we don’t HAVE to trim the palm trees).  It’s a great exercise to go through because it forces you to think:  “Why am I paying for this?  Do I really need this?”  You may decide that you want to cut ties with certain expenses now, and that’s perfectly fine!  Or, perhaps just going through the exercise of knowing you could part ways in the event of total income loss is reassuring to you, just like it was for us.

If you go through the exercise and find that you aren’t able to get by if there’s income loss, start building up that emergency fund now and cutting expenses wherever possible.  Maybe it’s cable, memberships, subscriptions, eating out.  Wherever you can make cuts, and redirect dollars to start building an emergency fund is awesome.  We have received so much peace of mind having an emergency fund.  It’s OK if it’s not 3-6 months of expenses; any amount will provide you and your family with security in times of crisis.

If you have never created an emergency budget, now is the time to do so.  Just pluck the essentials out, add them up, and calculate how long you can get by.  Then save this budget somewhere that you can reference with ease!

Stay safe, stay healthy, and stay frugal!


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