How to Budget During a Crisis

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When circumstances are normal, budgeting really isn't that difficult. For the most part, you can predict your expenses, income, and your day-to-day activities with relative ease. But what happens when an emergency comes up and threatens to ruin everything, including your finances?

Maybe you or a spouse lost a job, or a major medical situation is costing you a lot of time, concern, and money. How can you continue to budget when your circumstances aren't regular?

Remain calm

After a crisis, dread and fear can quickly set in. You may even be afraid to open the mail for fear of yet another bill. It can feel like the world is collapsing in on you, and rational thought goes out the window. Through all of the stress, remember that this crisis is temporary; you can and will get through this in due time.

Panic might be your natural reaction, but it isn't helpful in moving forward. Acknowledge your feelings, but try to remain as calm and levelheaded as possible.

Prioritize expenses

What bills do you need to pay immediately? Many types of debt, including your mortgage, auto loan, and credit cards won't be officially reported as late until they are more than 30 days past due. Are there bills that are approaching or past that time frame? Do you have enough income to cover all that you owe?

If you aren't sure that you can pay all your bills, you have a couple of options. The worst thing you can do is to simply stop paying. That will only get you further behind and you risk racking up a mountain of overdraft and late fees, not to mention the potential blow to your credit.

One option is to call the company behind each of your debts, explain your situation, and ask if you can get an extension or work with them to develop a payment plan. You will need to go back to your bills and prioritize them with any updated information and due dates. Pay the most urgent bills first. (See also: Pay These 6 Bills First When Money Is Tight)

If you still are coming up short, you will need to find a way to drastically cut your costs. Are there bills you can lower or cut out entirely? Start with the unnecessary expenses. Things like entertainment and dining out should come to a halt. Canceling subscription services such as magazines, gym memberships, and cable can put hundreds back in your pocket. Next, see what necessities you can lower. Find ways to shave dollars off your costs for gas, groceries, utilities, and more until your crisis has been dealt with. (See also: Are You Spending Too Much on "Normal" Expenses?)

Check in with your finances daily

Until your financial situation is under control, make it a point to check in with your money every day. Review all of your bank accounts, credit card balances, bills, budget, and know when your income is available. It's easy to get distracted and disorganized during a crisis, and that will only make your money matters worse. Overdraft or late fees can quickly pile up if you aren't diligent.

Know what to avoid

In a crisis, you may not know where to turn. By far, the worst resources you can turn to are credit cards or payday loans.

Credit card debt is very easy to get into. Getting out of credit card debt can take you years, especially on the heels of a financial crisis. Using credit cards during an emergency should be a last-resort option when you have no other choice. Prioritize repaying that debt ASAP once your crisis has been handled.

Payday lenders, meanwhile, deliberately target people in desperate situations. Believing they have no alternatives, people turn to these loans and rack up staggering amounts of debt at exorbitant interest rates. This practice of predatory lending leaves many people worse off than they were before. Avoid using these types of services at all costs.

Create a plan to protect your finances in the future

Digging yourself out of a financial hole will take time, but with persistence and smart money moves, it is absolutely possible. Once you are back on your feet, it's time to take action to ensure the next financial crisis doesn't land you back in the same hole.

Start by prioritizing building an emergency fund so that you are protected to weather another financial storm. Many experts recommend saving between three and six months' worth of everyday living expenses in this fund. With that cushion in place, another job loss, medical emergency, or other major financial blow won't be as devastating. (See also: 5 Ways to Boost Your Financial Resilience)

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