living in a down economy determining your bare bones budget

August 22nd, 2008

Living In A Down Economy – Determining Your Bare Bones Budget

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…

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23 Responses to “Living In A Down Economy – Determining Your Bare Bones Budget”

  1. You are absolutely right. Now is the time to batton down the hatches and prepare for the worse. The tide is turning and recession (in the form of mass job losses) is just around the corner. Getting ready today could be the difference between coming through it homeless and broke or it passing without a footnote! Best of luck!

  2. I live on a bare bones budget!

    My job of 25 years ended suddenly almost 3 years ago to this day. I was 2 years away from retirement and raising a teen granddaughter. Due to a natural disaster, I was forced to leave my home, city and state for good and reinvent my life, starting over with nothing. I decided not to return to the workforce full time, take my reduced retirement benefit and work occasionally.

    I eliminated all extras and my monthly expenses are just for rent, food, gas, health and car insurance, electricity, water, education loan repayment, and cable/internet. I look at my new life as a challenge to meet to see how well we can live on very little. I am ultra frugal in all aspects of life, yet have a life rich with experiences, friends and family.

  3. Your bare bones budget is a type of Depression area mentality.

    I was raised by my grandmother who was born in 1921. When the Great Depression began it was during her late childhood and lasted until her early adulthood.

    She always lived in a bare bones budget mentality. Preparing for the worst and hoping for the best.

  4. I have lived on a bare bones budget for many years. Ever since I got out of high school I’ve had to. I didnt make a lot of money straight out of school but I still had to support myself (living with parents wasnt an option). Then I got married to my husband and we decided that I was to be a stay at home wife/mother (when it came to it .. which wasnt too long after). We never had much to live on and then he was out of work for a year with only small odd jobs and unemployment to tide us thru until he got another job. Its tough, but its feasible.

  5. What I find interesting about this type of analysis is just how big a chunk of my budget all those “needs” and “wants” are. If it is to big of a chunk then I need to re-evaluate how I spend my money in the first place. Too much might depend on the person, but for me if wants ever exceeded 5% of expenditures I would probably want to seriously evaluate what I am spending my money on.

  6. In my opinion, the disposable diapers are a want, not an essential. For $12 I just bought 4 doz cloth diapers, used, for my son’s new baby. Now there’s just the easy washings. Not much cost for 2 years.

    I looked at my essentials only budget:
    Housing:tax/ins only : $73/mo
    (No mortgage)
    Groceries: $ 80 (have garden)
    Gas: $50 (short commute)
    Utilities: Electric $35
    Water/Sewer minimum $52
    Meds: $ 8
    Car Insurance: $67 If I drop truck then $56
    Phone – would let it go –
    No debt so no payments.

    Minimum bare bones budget: $365/month.
    Well, honestly – that surprised even me :)

    I think this was a great thought provoking budget to work out. I see that I should be tucking away even more money than I am for retirement! Have to get working on that! Thanks for the brainstorming session!

    For me, on an almost bare bones budget most of the time, my personal economy is doing just fine. I think I am personally better off than I ever have been in my life financially. And all on a take home pay of under $1000/month.
    But yes I realize it’s tough for those who up to their ears in debt. Been there, done that. :(

  7. Hey, don’t forget to budget for COBRA. You’ve got kids, which means you can’t afford to go without health insurance. When my husband got laid off is April 2005, the biggest shocker was the $1200 per month we had to pay for health insurance. We cut every non-necessity out of our budget, but when we added that $1200 in, we ended up pretty much at our regular monthly expenses. :(

    He was out of work for 4 months, but when he got hired, it was as a contractor so we STILL had that outrageous monthly health insurance payment. It totally sucked. We were really grateful when he got hired on as a “direct hire” and was given benefits at the company he’d been contracting at.

    We were very lucky. Between the severance pay, the vacation pay that was cashed out and the padding we had in our checking account, we actually didn’t end up dipping into our savings. But after that experience, we specifically set aside six months’ worth of expenses, INCLUDING Cobra health insurance payments (which we really can only guess at).

    It was his first and only layoff in over 20 years in the high tech world, which is pretty amazing, and I just hope we’re prepared if and when the next one comes around.

    Good post!

  8. p.s. I forgot to mention — during my husband’s unemployment, we also had to replace our washing machine because the old one died. And the same day we were dealing with our washing machine flooding the house, my best friend died at age 37 so we made the choice to go ahead and fly out for her memorial service. Luckily, we had people to crash with so we didn’t have hotel costs or many meal costs, but we still had to pay for three airline tickets and a rental car. Man, that was a painful period in our lives!

  9. Yes, health insurance for those of us who do not work full time to qualify at work is a real big expense. I have a high deductible policy that will cover only emergency and in hospital care for me and my 19 year old and my monthly expense for that is whopping!

    Thank goodness in February I will qualify for Medicare. I’ll feel rich without that huge monthly payment for health insurance.

  10. Disposable diapers can be classified as a want if you’d like. If I’d like my spouse to ever change a diaper, here they are a need. Since we work opposite shifts, well, he has to change some. :)

    I am potty training one kid so the expense has gone down. :) I am working on it! lol

    Health insurance…. health insurance… argh. There are a few different options about that depending on if one or both of us were unemployed, but still, argh.

    @Steward – I think it depends how you classify “wants”. Since I am kind of mean about the wants and booted a whole lot that someone else might consider essential into that category… I think it is more than 5%. I booted insurance even. lol

  11. Have to agree that health insurance is not an essential – maybe it is a need, but in bare bones budgeting, for me it would be a want. .

    I know that that’s the reason I work now – for the free health insurance, but if I had to, I would do without it. But, rather than pay the high premiums for Cobra, I would just buy a major medical policy with a very high deductible, like $5000. That way I would be covered for hospital bills for lenghty stays, but would pay the minor stuff myself – that’s what the emergency fund can cover. The premium on that would be about $350 a quarter – much less than Cobra.

  12. very interesting, just posted my bare bones budget and don’t really like the numbers :(

    My Bare Bones Budget

  13. After the dot com disaster of 2000-2001, DH and I downsized for good. By 2001 we had had enough of the economy and wanted the pain to end. We were fortunate enough to have a home with enough equity (16 years untapped) to downsize and literally never work again.

    The problem with that theory today is that homes are not as valuable as they were before (in 2001). People today have real dilemmas.

    But don’t think that because we downsized in 2001 that we still (or will never) feel any more pain. I have never seen things this bad: rising food, energy and gas prices, job insecurity, the list goes on and on. The only way to survive is to cut your budget back to bare bones and be creative.

    Here’s my budget for 2009:
    http://wastrelshow.blogspot.com/2008/08/projected-minimum-2009-budget.html

    It helps me to read other peoples stories, journeys and solutions.

    Thanks for sharing.

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