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Why you need an emergency budget

Money experts have long recommended emergency funds, a money buffer to allow for the unexpected to happen, as one of the most important keys to a healthy money life. This money practice is important, but you also need an emergency budget, a plan to go along with your savings to be best prepared when a crisis strikes.

What happens to your hard-earned savings when an emergency arises and you need to dip into those funds? How do you know how long your money will last? What should you spend it on and what should you stop spending on?

In the middle of a crisis, no one is the best at managing their money. We spend emotionally. We panic. We don’t have the stability and guidelines that our budgets normally provide us.

The Emergency Budget

– your new favorite tool for peace of mind –

Building one is simple and does something that can’t be bought.  It lets you know exactly how much money you need to live off in an emergency situation.

Our regular monthly budgets account for a lot of things: paying bills, putting money in savings, debt repayment (for some), sinking funds, eating out, etc. In an emergency, many of those things won’t have a place in your budget anymore.

By creating an emergency budget NOW, you’ll know the amount of money you really need to survive the month with a roof over your head, clothes on your back and food in your belly.

saving money for emergency

Creating An Emergency Budget

1. Make a copy of your regular monthly budget.

Go through it line by line and cut anything that isn’t absolutely necessary to survival. Rent, electricity, food, car payments, insurance and gas all get to stay. Savings, restaurants, entertainment and “fun” money should all go. Be ruthless.  Read how to make a budget.

2. Add in lines for emergency expenses

Include things that could come up in an emergency situation. If your job covers your family’s medical insurance, COBRA could be a necessary added expense in the case of a job loss. If the potential emergency issue is medical, an increased child care budget may be a need.

3. Total your budget

Fully total your budget out and save it as “My emergency budget.” Put it somewhere safe and update it annually or as your financial situation changes.


You should now have an approximate number of how much money you need for one month. This “bare bones” budget can be used to see how much money you want to save for your fully funded emergency fund or to see how many months your current savings will last.

That number will also give you an idea of how little you need to be bringing in to survive. It is likely much less than your current income and will give you some peace of mind knowing that number when facing a potentially long-term emergency situation.

Doing this now allows hard decisions to be made with a clear head, versus later when you’re in crisis mode.  Armed with an emergency fund and an emergency budget, you will be much better equipped to weather any financial storm.

Your Turn!

  • Do you have an emergency budget in place?
  • Have you ever had an emergency impact your budget?

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4 Rules to Curb Impulse Spending

Impulse spending was my biggest money mistake, to the tune of thousands upon thousands of dollars. Aside from our student loan debt, 85% of our debt was because of impulse spending and not planning ahead.

In order to break the cycle and change our spending habits, we had to learn the rules to curbing our impulse spending. I wished I had known about these strategies years ago, but they are still rules that we follow today.

Only leave with the cash amount that you are willing to spend

When you go out shopping with a limit to how much you’re willing to spend in mind, take only that amount in cash. Leave your debit and credit cards behind. If you leave any access to extra funds at home, you guarantee that you will not blow the budget and pick up $100 worth of items from Target when you only went there for paper towels.

Avoid the places where you know you tend to overspend

When we did our spending analysis, I saw just how much of a weakness I had for the cosmetics counter and Target. Those are two places where I can easily find myself overspending and making impulsive purchases.

My husband on the other hand would rarely walk away from our local hardware store with just the one item that he went there to pick up. We acknowledged our impulsiveness and agreed to avoid those places as much as we could.

Shop with a list

I not only shop with a list when doing my grocery shopping, but I also make a list when it’s time to do any type of shopping. My lists are made up of the items that we need by doing an inventory of what we already have, and nothing else goes into the cart.

As I prepare my Christmas shopping list, I come up with four items for each of my children. Something they want, something they need, something to wear, and something to read. Aside from the stocking stuffers, I know that with my list I’m protecting myself and my budget from going overboard.

Unsubscribe from those store email lists

Every morning I would be greeted with a long list of emails from some of my favorite stores letting me know about the great sale that they’re having (they seem to be having a different one each week), or a coupon code. I found myself all of a sudden in a mood to go shopping and take advantage of all these great deals.

This past January I decided to end the temptation once and for all. I unsubscribed to all of the email lists. No longer am I bombarded by sales ads, I’m no longer tempted to take advantage of the sale or coupon code on items that I didn’t really need anyway. After all, if you don’t need the item, you’re not really saving any money, no matter how much it’s marked down.

Your Turn!

  • What is your spending weakness?
  • What do you do to curb impulse spending?

What to do if you go Overboard and Over Budget

It happens, even to those of us who have been budgeting for years. There are going to be those months where something (or many things) come up and blow your well-planned budget out of the water.

Knowing that it will eventually happen, it is best to prepare yourself for that month (or months) where things have gone overboard and over budget.

Step One: Stop and Breathe – It’s going to be OK

What you want to avoid doing when you know you’ve gone over budget is to throw your hands up in the air and forget the whole budgeting thing. When times get tough and the cash flow feels tight, you want to try your best to maintain a positive attitude.

Step Two: Go Into Your Budget

When I’m stressed out about the budget, the last thing I want to do is go in and check in with my budget since I know I’ve blown it. I know though that it is the one thing that I must do. Go into the budget, see where things are, and see what needs to be cut back on so that you can find a way to cash flow this latest life expense.budget binder

Take a look at your variable spending categories (food, clothing, gas, etc.) and see if there are any areas where you don’t need to spend as much. Can some of that money be used to help cover the unexpected expense?

If you can’t cut from your variable expenses, take a look at what you are setting aside in your sinking funds. Ask yourself if there are any sinking funds that you can stop contributing to this month so that you can free up extra money and not completely blow the budget.

Step Three: Take a Look Around Your House

Is there anything around your house that you could sell to recoup some fast cash to then cover the unexpected? With so many buy and sell sites available online, making some fast cash is never easier and having that cash in hand in exchange for those items that rarely get used anymore will help to limit the stress that you’re feeling right now.

Step Four: Tap into your Savings

If the extra income isn’t there or if there are no areas in the budget left to slash, then it’s time to look at your savings. Yes that money might be earmarked for something else, but if it means not having to go into debt to help cover the cost, it’s better to borrow the money from yourself..

When things are better and you averted this temporary crisis, you can always pay yourself back. And it’s much better to pay yourself back than paying back a bank who charges you interest.

Your Turn!

  • How do you get through those months where life has thrown you an unexpected expense?

5 Things I Stopped Buying to Save Money

When you’re trying to save money, it’s a good idea to track what you currently spend money on and see if there are habits that you can change. Perhaps you can do without some items, look for a cheaper alternative, or find a way of doing it yourself.

In order to free up as much money to put towards our financial goals as possible, we saw our biggest money wasters and made cuts or found cheaper alternatives. They were simple changes to make and we haven’t looked back since.

Pre-Packaged Foods and Snacks

This was one of the first things to get cut from our shopping list that has saved us a lot of money over the last three years. When I saw that I could buy a bag of chocolate chips for the same price as a box of pre-packaged cookies, I quickly realized that I could make a lot more cookies for the same price, cut down on the amount of package waste our family was producing, and save a lot of money in the long-run.

The other things we stopped buying were the pre-packed side dishes, like flavored rice and pasta. Again, a large bag of rice or pasta is much cheaper and you can season it as you wish. The other thing to go were the boxes of crackers. Instead we’ll air pop some popcorn and have that as a crunchy snack.

Bread

One road trip during the summer we found ourselves driving through Amish country. That time of year, you can find vendors set up along the side of the road selling fresh produce and baked goods. When I saw the homemade bread, I had an awakening of sorts.

Bread where I live will go on sale for $1.75 a loaf, and that is the rock-bottom price. At the time I was spending on average $2.00 a loaf and each week and would have to buy 4 loaves of bread (Yes, we’re big bread eaters…Yum). The math however on that was a little scary. $8.00 per week meant that we were spending $416 a year on bread.

We inherited a bread maker that sat in my pantry for years, never being used until we returned home from that summer trip. I found a great recipe and have been enjoying homemade bread ever since. I can easily make a loaf for under $1.00, saving my family $200 a year.

Gym Memberships

When making cuts to our budget to save money, this was also one of the first things to go. I enjoy exercise and know how important it is to our overall health, but I also know that exercise doesn’t have to cost you a lot of money.

Rather than spending $30 a month on a gym membership (that honestly wasn’t being used enough to justify the cost), I spent $30 on a pair of hand-held weights, a weighted medicine ball, and a yoga mat. Getting outside and going for a walk or run is free and, thanks to the internet, there is an endless supply of exercise videos and tutorials available online that I can stream on my television.

Books and Magazine Subscriptions

I used to love getting the mail and finding my magazine subscription come in. When I added up what I was spending each year, I realized that it was money that I could just as easily put towards our financial goals. I quickly cancelled my magazine subscription and started enjoying the same magazine loaned from the library for free.

As a literacy teacher, I also love books. One of my favorite things to do would be to head over to my local bookstore and browse the shelves looking for the next great read. I treasured my growing collection of novels. What I didn’t treasure was the ever increasing price. Again, back to the library to pick up the same books and enjoy them for free. 

Take-Out Coffee and Disposable K-Cups

Coffee. I love coffee. It’s the first thing that I look forward too each and every morning. It was also a constant leak in our budget. When I saw what six months worth of take out coffee cost, I was shocked. It never seems that much when you’re spending only two or three dollars at a time. For what I was spending in one week, I was able to pick up a travel coffee mug and now bring my own from home.

The other expense we gave up were the individual, single-use K-cups for our coffee machine. I traded in my single-use cups and bought some reusable cups that we fill with our own coffee for pennies a cup. Not only is it better for our wallet, but also better for the environment.

Your Turn!

  • What have you stopped buying in order to save money?

Money Habits of People Who are Debt Free

Whether your goal is to become debt free, run a marathon, or simply declutter your home and live a more minimalist lifestyle, we often turn to those who have had success and do what they do. It’s called studying best practice.

If you want to learn how to run a marathon, you would talk to other runners and follow a training plan. If you want to enjoy a more minimalist lifestyle, you would read up on minimalism and talk to other minimalists. If you want to become debt free, you adopt the money habits of people who are debt free.

Organize and Pay Attention to Your Bills

Rather than just piling up the bills and walking away from them, people who are debt free open their bills as soon as they come in. They check to make sure that the statement is accurate and organize them in a way to ensure that the bill is paid on time.

Live Within Your Means

People who are debt free do not spend beyond what they earn. It seems obvious, I know. But in these days where credit is easy to come by, and most aren’t spending intentionally, it’s easy to spend more money than what comes in every month.

People who are debt free follow the principle that if you don’t have the cash, you can’t afford it. So part of living within your means also requires you to strengthen your savings muscle and set aside money each month for larger purchases like vacations, home improvements, or a new-to-them vehicle.

Don’t Try to Keep Up With the Joneses

People who are debt free have learned to practice the art of contentment and are grateful and happy with what they have. They don’t worry that their neighbors just purchased a shiny new vehicle or just upgraded to a 75-inch flat screen television.

They also avoid the trap of emotional spending and buying items to make them feel better. They know that these unplanned purchases only have a temporary effect on one’s feelings, and if anything may lead to feelings of stress later on in the month.

Demonstrate Self-Control

In order to live within your means, it’s important to be intentional with your money and develop a spending plan. Debt-free people create a budget before the month begins which gives each dollar coming in a job, helping to eliminate money that disappears or gets wasted.

Part of living on a budget also means avoiding impulse purchases. These impulse purchases can quickly destroy a budget. Instead try avoiding the stores that you know cause you the most temptation when it comes to buying impulsively. You know that trip to Target that you made to purchase one item and ended up walking out with $100 worth. Trust me, been there, done that!

Be Proactive

It’s no surprise that being proactive is the first habit discussed in “The 7 Habits of Highly Effective People” by Stephen R. Covey. People who gain control of their finances and live debt free have learned to be proactive. This means that they have looked at ways to cut their budgets and their spending to free up extra income to pay off their debt and then start saving. They will also look for ways to earn an extra income if it’s necessary to reach their financial goals.

Your Turn!

  • What’s one money habit that you would like to improve?
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