By: Meghan Monson, Homeownership Programs Coordinator
Whether you’ve experienced a loss of income or you want to prepare for difficult times, an emergency budget can help you determine how to spend your money when you need to stretch as thin as possible.
The purpose of following an emergency budget is to stretch your money as far as possible to last you throughout a crisis. You might be living off reduced wages or from savings during this time. Your emergency budget tells you how much money you need every month to get by. Does your reduced monthly wages cover your needs? If you have savings, how long will they carry you in this crisis? (Divide your total savings by the amount you plan to spend each month).
To create an emergency budget, first think about this question: what do I need to keep paying for? The answer will depend on what goods or services you want to maintain during the emergency. For most people, these will include the necessities to keep them and their family safe and healthy. Food, shelter, medicines, and utilities are all necessities.
When you know what you want to continue paying for, you can eliminate most or all other items from your budget. An emergency is not the time to buy expensive food or pay for entertainment. Once these are eliminated, you will have your emergency budget.
In an emergency, you will also decide what to pay for based on the nature of the situation you’re experiencing. For example, for those who currently face a loss of income because of the coronavirus in Massachusetts, there is flexibility when it comes to making payments. Many utility companies have suspended fees and disconnections due to non-payment. If you’re a renter in Boston and you can’t pay rent, have a conversation with you landlord about your inability to pay. They, in turn, can talk to their bank about mortgage relief.
Knowing the options for payment flexibility can help you make a budget that prioritizes feeding and keeping you and your family safe. Keep in mind that if you choose to not pay a bill now, you will be expected to pay it when the time of crisis is over.
Following feeding and keeping you and your family safe, do your best not to let the emergency ruin your credit. Remember that as long as you make the minimum monthly payments on your credit cards and loans, there are no negative credit effects. Try to include these minimum payments in your emergency budget, if possible.
By creating a plan for your finances in an emergency, you will better understand how long you can financially weather the crisis and how much time you have to get back on your feet.