The current pandemic is a situation we have little or no control over, but what we can control is how we respond to it. It’s advisable now more than ever, we adjust our lifestyles so we can scale through without ending up in a financial crisis. How? The first step is with a crisis budget. A crisis budget is a money control tool that will help you manage your finances more effectively during these uncertain times. With it, you’ll be able to pay your bills, save and dodge debt.
If you’ve been living above your means or your income has taken a hit, you can’t continue living the same way. Adjusting to the current situation might be difficult at first, but it’s important to commit to living on your adjusted monthly income and to incurring no new debt. Your budget is only helpful if you follow it. Follow these steps to create your crisis budget.
1. Determine Your Current Income
The first step in budgeting amid the pandemic is establishing where you stand financially. Total your income before the crisis, subtract the monthly lost income and add amounts coming from new income sources (e.g. severance pay, available savings, and emergency funds).
Your budget should accurately reflect all possible sources of income. The resulting total is your adjusted monthly income.
2. Categorize your expenses
This step will help you understand how you’re spending. Make a detailed list of how you spend money regularly in a month and split them into two.
- Necessities: These are must-haves. They are things you have to continue paying for, for your basic needs to be covered. Think of shelter, food, and security.
- Variable expenses: These expenses are nice-to-have. They include optional incidentals that might not recur every month. Think entertainment and personal care
Factoring in all possible expense means you won’t be surprised when a bill rises
3. Prioritize needs over wants
Prioritizing your essential “needs” over “wants” when in crisis mode matters. Your necessities should be the top priority and naturally takes precedence over your variable expenses. Expenses that fall into the nice-to-have category should either be reduced or eliminated depending on your newly adjusted level of income.
Delay all non-essential expenses and analyze your monthly subscriptions. The goal is to preserve as much of your income for as long as possible.
4. Spend to save
Be intentional with your spending. While a crisis budget can help you cut back on your spending, there are ways you can save as you spend. Take advantage of promotional items. Service providers are playing their part in helping us cope better with the lockdown by reducing prices on some essential items. You get to save money by taking advantage of their offers.
On the off chance you have a reprieve on certain expenses, tuck that money into your emergency fund so you’ve got a sense of security. The key is to ensure your spending is optimized on the expenses side of your budget equation. Events can and will happen. Keep saving in anticipation of future needs.