In times of financial uncertainty, like after a job loss, taking control of your spending is critical, but it can be daunting. A basic budget is the first step toward managing your cash flow and making plans for the immediate future. If making a budget feels overwhelming, start with these bare bones budgeting tasks:
·Start today: It sounds overly simple, but people tend to think of a budget as a monthly chore for the end or beginning of the month. Start gathering information before the calendar turns. Track your spending in real time by listing your expenses as they happen. Do this throughout the month—not just at the very end—so your spending doesn’t surprise you, and so you know when to adjust your budget. Staying ahead of your situation has both financial and emotional benefits.
·Identify Your Income: List any money you expect to receive at a household level. If you are still working, this is your paycheck, or payments from your customers. Income can also come from government benefits, investments, and other sources, such as child support or spousal support.
·Establish a Buffer: To avoid overdraft fees and anxiety-inducing low balances, build in a buffer. Always leave $50–100 in your checking account. Treat this buffer as your functional zero. Pretend it’s not there. Fees can eat away at your progress if you’re not careful.
·List Your Fixed Expenses: Once your income is accounted for, create a list of fixed expenses–recurring monthly payments you make in the same amount, like tuition, student loans, rent or your mortgage payment. Insurance costs are typically fixed as well—health, auto, renter’s or homeowner’s, and life. Don’t forget child or elder care!
·Add Common Monthly Expenses: Start with necessary variable expenses—your grocery pharmacy, and essential clothing costs, and recurring bills that can change based on monthly usage, such as utilities or gasoline. If you have monthly wellness costs like doctor’s appointments, add those too. Then add discretionary expenses—nonessential spending, such as media streaming services and take-out. (To track your typical spending, you can look at a couple months of bank statements and calculate an average).These discretionary, non-essential expenses can be the first areas to cut if you’re out of work or needing to reduce spending. And you’ll have an understanding of how much your must-pay bills are each month.
·Look Ahead: Pull out the calendar and make note of any anticipated unique spending (such as your anniversary, school pictures, holidays or membership fees). Add those items to that month’s budget.
·Use a Sinking Fund: A sinking fund or cash reserve covers unexpected large expenses–like car or home improvement repairs, or non-monthly budget items such as quarterly or semi-annual insurance payments, membership dues and fees, seasonal recreation, or travel. The expenses you identified in the last step may fall into this category, too. Contribute to the sinking fund monthly to spread out and level the impact of these expenses. Your plan as a part of SAVVI can recommend a cash reserve or sinking fund as well as provide helpful guidance on a funding plan for that savings.
·Consider Your Money Goals: Take a deep breath. Financial insecurity can be overwhelming, but you don’t want to lose sight of your goals. If your first priority is the next couple of months, consider reducing expenses in the short term. Then think about where you want to be—financially—next year, and in 5, 10, and 20 years.
·Adopt a Zero-Based Budget: No, you don’t spend until your bank account hits zero. A zero-based budget puts every dollar to work. Your full income should be accounted for in your budget. If your budget has room for savings and investments after you’ve established your monthly spending, add those payments now. It’s easier to put money aside for savings if you treat it like a regular expense that must be paid.
·Stay Flexible (When You Can): A budget is a living document. There will be changes; don’t be afraid to make adjustments to your budget to reflect them. For example, if the electricity bill is higher than you anticipated, make the adjustment in your budget, then find a place to move the needed funds from. Maybe another utility was lower, or you can spend less on discretionary items to make up the difference.
·Avoid High-interest Debt: When struggling with a basic budget, a payday loan or high interest credit card may be tempting to help you splurge or get by. These should be options of last resort as part of the budgeting process. A basic budget can help you take control so you can avoid such drastic options.
With your budget established, you have a powerful tool in hand. Understanding where your money is coming from and where it goes means you can face financial challenges and make informed choices when it comes to a new job, a potential relocation, or how to reduce your spending to ease the burden of a furlough or layoff.
If you've been financially impacted by the Coronavirus crisis, click here to take advantage of our free interactive tool. The questionnaire will help you determine if you qualify for assistance to maintain financial stability in this time. If you qualify, you will also have access to a free financial plan from SAVVI. Your SAVVI plan will take into account the effects of the current crisis, while helping you achieve your long-term goals.
SAVVI Financial LLC (‘SAVVI’) is an investment advisor registered with the Securities and Exchange Commission. SAVVI does not guarantee investment results and past performance is no guarantee of future results. Information provided is for educational purposes and does not constitute investment advice, which is only provided to registered users who have a valid Investment Agreement in place with SAVVI. No information on this presentation should be construed as an offer to buy or sell any security or insurance product. SAVVI is not a certified accountant, lawyer, tax professional or HR professional. Nothing in this document may be considered as tax, accounting, employment or legal advice. Please consult with your accounting, tax, human resources or legal professionals before taking any action.