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How To Create Your Worst-Case Scenario Budget

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David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
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The pandemic taught us all many things. It has especially taught us how quickly life can change and how easy it is to lose your income and even your life.


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Of course, we can’t control whether or not a global pandemic begins (or how long it even goes on, apparently), but we can plan ahead so that we know what to do if financial hardship strikes. That’s why it’s so important to take a moment and create a worst-case scenario budget for yourself and your family. Here’s how you can get started:

Get Clear On Your Fixed Expenses

One of the first steps for getting a handle on your budget is understanding how much money you must spend each month. Fixed expenses are expenses that generally remain the same every month or expenses that you are required to pay or there will be consequences. This can include things like:

  • Rent/mortgage
  • Utilities
  • Debt/loan payments
  • Subscriptions
  • Insurance
  • Healthcare costs, such as co-pays and prescriptions

When you have a clear list of your fixed expenses, you have a good starting point for your budget. You’ll understand how much money must be going out each month to keep yourself housed and warm. Plus, you might be surprised by some of these expenses that you had forgotten about. This could be a good opportunity to cancel or negotiate items you no longer want to pay for.

Identify Which Expenses Can Be Cut

Obviously, there are some expenses that we can’t put on hold or cut entirely. Things like rent, utilities, and food are pretty essential. However, in times of crisis, we often are required to make some sacrifices and cut some things out. Get clear on which fixed expenses you would be safe and capable cutting or reducing if you were to lose your income or have some other financial emergency. That way, if crisis strikes, you’ll know exactly which expenses to cut, reduce, or pause. This will take some of the stress out of the situation if the time comes.

Debt and student loan payments can’t just be turned off, but there might be an opportunity for flexibility. If you have federal student loans, you can put your loans into forbearance if you’re in a moment of financial hardship. Alternatively, even if you have private debt, you may be able to reach out to the lender or bank to see if they’re willing to help you. In the beginning of the pandemic, many banks were helping customers who were struggling to make payments. Understanding what your options are ahead of time will help you when crisis hits.

Review Your Typical Flexible Spending

Flexible spending is spending that you generally have more control over, but it doesn’t mean it’s all spending that can be completely cut out. These categories can include:

  • Food (groceries and dining)
  • Transportation (gas, cabs, or public transit)
  • Shopping (clothes, toiletries, etc.)

Many items that fall under flexible spending are important and even imperative. But it’s still necessary to have an understanding of how much you spend outside of your fixed costs. If you don’t know how much you’re spending, it’s impossible to make changes, if necessary. This exercise will help you identify if you’re overspending in certain areas. It can also help you understand what can get reduced or cut completely if you fall into financial hardship.

Identify How Much Money You Can Live Off Of

Once you’ve gotten clear on what can be cut and what absolutely can’t, you’ll have clarity about how much money is the least that you could possibly live off of. You want to make sure that you’re prioritizing things like food, transportation, healthcare, and anything else that is important for your overall wellbeing and that of your family. If you were to lose your job, and you drastically reduce your household spending, this will help reduce the amount of debt you might accrue, or reduce the amount you have to withdraw from savings. Remember, hopefully this restriction will be temporary, until you get back on your feet.

Prioritize Your Emergency Fund

Prioritizing funding your emergency savings account should always be top of mind. That should be even more apparent after what we’ve gone through over the past two years. Anything can happen at any time, and it’s so important to have money set aside to protect us and our families during a crisis. If you haven’t already started saving for emergencies, get started today. Even if you need to start with $5 a month, do it. You can increase that over time. If you already have an emergency fund, check back in with it to make sure you’re comfortable with the balance. How long could you live on your worst-case scenario budget if you only had your savings to use? If that amount of time scares you, it’s time to start increasing your savings.

Keep A Record Of Your Worst Case Scenario Budget

Once you’ve done all this work to create a worst-case scenario budget, make sure you actually save the information! Create a spreadsheet or a list of your expenses that will stay and the expenses that will be cut. That way, you’ll know exactly what steps you need to take in the moment of crisis. Don’t give yourself more stress by requiring yourself to go through this process again when it’s unavoidable.

Hopefully you won’t need this worst-case scenario budget, but you’ll be glad you have it if you do!

By Maggie Germano, Contributor

© 2022 Forbes Media LLC. All Rights Reserved

This Forbes article was legally licensed through AdvisorStream.

David M. Brenner profile photo

David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
Schedule a Meeting