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Budgeting your money can be challenging enough but when a crisis or financial emergency hits, it can be even harder.
For example, you might be dealing with a pay cut if you get laid off from your job. Or you might be struggling to keep a business you own afloat if people are suddenly spending less money.
It can be scary, to say the least. And you’ve probably heard time and time again how unprepared Americans are for financial emergencies.
But the bills still have to be paid each month. And you and your family have to eat, too. So learning how to budget your money strategically can help you stretch every last dollar.
If you’re panicking a little (or a lot) over how to make ends meet in a money emergency, this guide can help.
I’ve included some of my best tips for making your budget work when it feels like you’re dangling on the edge of a financial cliff. These tips for how to budget your money may not make a financial crisis go away any faster, but they can help you get through it and come out on the other side.
1. Shift your budgeting mindset
The first thing you have to do in a financial crisis is to rethink what your budget is supposed to do for you.
Normally, you might budget to pay the bills, save a little and still have plenty left over for fun. But when you’re budgeting your money under pressure, you have to prioritize.
So as you start working on your emergency budget, figure out what matters most. For most people, that’s going to be:
- Keeping a roof over your head
- Making sure the lights and water stay on
- Keeping your family fed
- Maintaining insurance for your property and health
Those are the most basic needs your budget should help you meet and the expenses you should be planning for first.
Remember, you’re in money crunch mode now. Anything that doesn’t fit into one of those boxes might need to take a backseat.
2. Figure out how much money you have to budget
Budgeting your money in crisis situations may mean you have less income to work with.
If you lose your job or your hours get cut, for example, that’s less money coming in. So you have to adjust your budget accordingly.
Here’s a good rule of thumb for coming up with a baseline amount you can afford to budget each month if your income has dropped. Cut your spending by the same percentage.
So if you’re making 30% less right now because of a financial emergency or crisis, then you’ll need to cut spending by at least 30% to keep pace.
I know that sounds like no fun at all and it isn’t. But if you don’t want to end up going into debt with credit cards or loans then you’ll have to adjust your spending to fit what you’re making.
Also, don’t forget about savings and things you can do to make money during a crisis.
Not to mention, there are plenty of side hustles you can do from home to make money. Any income you can add to your budget during a crisis can help create more financial breathing room.
3. Get rid of extra and unnecessary expenses
An easy way to look at your budget is in terms of what you need to spend to maintain our standard of living each month and what you choose to spend on extras.
Ideally, you keep track of your spending each month so you know where your money is going. And if you aren’t yet, that’s a good habit to get into so you’re more prepared for how to budget your money when a financial crisis hits.
Look at everything you spend each month that doesn’t fall under the umbrella basic needs (i.e., housing, utilities, food, insurance, etc.) The go through your expenses one by one to see what can cut back on or get rid of.
The most obvious choices for cutting spending include:
- Eating out (or getting food delivered)
- New clothes
- Cable TV
- Pricey cell phone plans
- Hobbies and recreation
- Electronics and gadgets
- Toys for the kids
- Books and magazines
- Subscription services you don’t use
But if you’ve already cut out these things, consider what else you might be able to get rid of, even if it’s just temporarily.
For example, think about things you outsource like having the grass cut or dry cleaning. Or things you buy that you might be able to make yourself or do without.
When you’re in an emergency budget mode, every single penny counts.
4. Negotiate better deals on your bills and debt
When a financial crisis looks like it might hang around for a while, budgeting your money wisely may mean getting into haggle mode with your creditors and billers.
For example, if you have credit card debt you may be able to qualify for a hardship program through your credit card company. These programs are designed to help make keeping up with payments easier so your credit score doesn’t get wrecked.
Refinancing student loans is another option if you’ve got high-interest debt. You might also consider refinancing your mortgage if interest rates are low.
Either one could help reduce your monthly payments so budgeting your money is easier. And you can also reach out to your lenders to see what other options exist if your budget is so tight you can’t make your payments.
Other ways you might be able to negotiate include:
- Asking for a better deal on car insurance or homeowner’s insurance
- Reducing your cell phone or internet plan
- Asking your landlord for a better deal on rent if you don’t own a home yet
- Switching banks to avoid hefty fees
- Working out payment plans for medical bills
These are all things you can do yourself. But if you need help finding expenses to negotiate, you could try the Trim Financial Manager.
Trim reviews your spending to help you find costs that you can cut out of your budget when money is tight. It’s a helpful tool to have when you’re stressed about your money situation.
5. Be prepared to make hard choices with your finances
Budgeting your money in a crisis means that you might find yourself making money decisions you wouldn’t ordinarily make.
Deciding between buying groceries to feed your kids and paying the mortgage, for example, is a worst-case scenario. While not as bad as that, deciding to hit pause on contributing to your 401(k) isn’t exactly ideal either.
But if your financial situation is tight and a light at the end of the tunnel seems far off, then you need to be realistic about what choices you’re willing to make. That all goes back to step one and prioritizing what’s most important.
Also, don’t be afraid to look for financial help in hard times. There are resources and systems in place to help families and individuals who are going through money troubles.
That includes things like unemployment if you lose your job, SNAP benefits (food stamps), housing assistance and other government programs. Food banks, churches and even friends and family can also be a source of help when you’re struggling financially.
And remember that even if budgeting your money means making some painful decisions right now it doesn’t necessarily mean your finances are ruined forever.
Credit scores can be rebuilt, emergency savings can be replenished and you can play catch up with retirement if necessary. What matters most is making sure your family’s basic needs are being met right now.
Do you have a tip for budgeting your money in a financial crisis?
When a sudden shift in your finances happens, it pays to know what to do. And having a solid emergency budget can make a huge difference in how well you’re able to ride out financial storms.
Have you experienced a tough financial time or are you going through one right now? What tips or advice do you have for how to budget your money?
Head to the comments and tell me about it. And don’t forget to pin and share this post!