Here in the US, things aren’t necessarily looking so hot. I don’t know if recession is the word, or if the powers that be actually acknowledge that things, economy wise, aren’t doing so great, but in my little corner of the world, it is basically a given. Ask a friend, ask a neighbor, and most likely they’ll say that things cost more and their dollar doesn’t go as far as it used to. I haven’t collected quantitative evidence but it sure feels like the economy is in a downturn from here.
How things are now are giving me flashbacks to another economic downturn that directly affected my family – the so-called “dot com bust”. Around that time, the company my spouse then worked for went through a huge downturn and ended up laying off almost all of its employees. My spouse was one of them. It didn’t come without warning, his losing his job, but we were naive and didn’t read the signs. We were completely unprepared for my spouse to be out of work, and that period of time put us in an economic tailspin of our own that took a long time to recover from. So now, I’m starting to become mentally and financially prepared for the worst, so to speak. There aren’t any signs of my spouse losing his job – in fact he’s in a much better position now with more seniority and job security than he’s ever been in – but you never know what might happen.
So I’ve started to seriously consider what our bare bones budget is, what we absolutely have to pay for, what we want to keep but isn’t essential for survival, and what we would like to keep but can go if need be. I’m doing this to determine the very lowest bottom line that we can get by on if we had to. This isn’t an exercise on how to reduce our fixed expenses (although that is a future step to consider) but just to understand what those fixed expenses and necessary variable expenses add up to. It is easy to say “sell your car” or “sell your house”, but when disaster in the form of a job loss or other large financial change occurs, it isn’t always possible to lower those fixed expenses immediately. Especially in a down economy. Understanding what your current bottom line bare bones budget is is the start to preparing to avoid a financial disaster.
I split up our expenses into three categories – essential, needed, and wanted. Essential are things we can’t go without, such as shelter and food. Of course, we could do things to reduce those expenses, but that’s for another post. Needed are things like our newly purchased disability insurance. We need these things, but if it is choice between that and eating, eating wins. And then come the wants. For example, my kids are starting a session of tumbling in September. They can live without it, but I want them to have the experience. But if our situation drastically changed, they wouldn’t be tumbling. Here is what I came up with for my essentials list (per month) :
- Housing: $950
- Groceries: $300
- Gasoline: $100
- Utilities: $200 (gas, water, and electric)
- Diapers: $30
- Medicine: $30
- Car insurance: $80
- Phone: $10
- Minimum debt payments: $610.40
Kind of depressing that the second biggest thing is minimum debt payments, but, we are working hard to correct that. But that’s where it stands now. So I came up with our bare bones budget as $2310.40. Which seemed higher than I expected, given our actual monthly budget (before extra debt payments) is only slightly above $3000, but I guess we don’t budget a lot for extras after all. There are many other things I consider important that I didn’t list here – this is the very bare bones that for the short term, we could get by on. And of course, there are always the inevitable emergencies. This is the short term, first line of defense preparedness concept.
After our non-mortgage debt is paid off, that drops down to $1700 a month, which I like better.
So now, I know where we stand. If we can’t bring in at least $2310 – we need to have some kind of fallback plan. Which leads us to the emergency fund…