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Is Your Budget Ready for Worst Case Scenario?

COVID-19 hit, it separated the world, creating fear and unrest. Yet the pandemic taught us several important lessons that changed our lives forever. One lesson that we learned specifically was how quickly things could change.

We also learned how easy it is to lose one’s income and lose 2 good years from one’s life(or when one happens at all, for that matter).

Of course, since no one knows exactly what will transpire during a pandemic (be it its duration or intensity), we can only try to plan for the upcoming days so that we can know in advance how to manage financial hardship.

This is exactly why it’s so important to take a moment and create a worst-case scenario budget for yourself and your family – Here’s how you could get started:

Why have a worst-case scenario budget plan?

43+ million Americans have lost their jobs within the first quarter of this year. The emergency federal aid in the form of a $600 boost to unemployment benefits and $1,200 stimulus checks have provided temporary relief to many families.

We didn’t know what long-term effects the coronavirus pandemic could have on our wallets.

Not only did the pandemic sound daunting, but it could also be anything else, like another pandemic or maybe an economic meltdown or war; who knows what awaits us a few years from now.

So, it is essential to learn where to start when creating an annual budget in this economy.

List down your fears

It might sound daunting, but it’s actually a good idea to sit down and think through your greatest fears surrounding whatever situation you are dealing with. It is easier said than done, but knowing your priorities under trying circumstances can help keep you sharp and lead you in the right direction.

If job loss is one of your biggest fears, we suggest you make it a point to sit down and list possible reasons why such an event could happen to you or how it might affect your situation before taking action.

For example, if you are working for yourself or an employer with fewer than 20 employees, does the company offer health insurance continuation coverage?

Or maybe something else would cushion the blow from not having a full-time job, such as savings or maybe supplemental income from other sources, which would help bridge the gap between periods of unemployment.

This mental exercise will help you come up with a bullet-point list of steps to take when you feel like you’re losing your mind so that you can right the ship, keep yourself afloat, and get back on track.

Try this out, first by identifying what’s keeping you afloat.

Does it take having the TV on in the background while working? Maybe it’s a cup of coffee or tea? Write those down. Next, figure out what specific things are tugging at your ankle and keeping you from staying afloat, and write those down specifically.

For example, if you find yourself to be distracted more easily by feeling tired all the time, maybe telecommuting for a few weeks would help maintain focus as well as protect work/life balance.

Identify Which Expenses Can Be Cut

Certain kinds of stuff in our life should never be cut or skimped on, like medical expenses, health insurance, and meals. However, some people like to put off bills and other things we have to do but don’t necessarily want to do.

Get clear about which fixed expenses you feel safe disconnecting with if you were to lose your income or have any other financial emergency. You will know exactly what’s necessary and can then easily cut the unnecessary out of your life so that it won’t feel like unfamiliar territory for you if a crisis ever comes along.

While it is not possible to live without debt, as many families are now aware of, one can take measures to try and deal with the burden.

While most people are aware that they have federal or private loans for student debt, there are other sources of financing out there, and if you need help managing a loan, you may qualify for restraint on the main income contributor (weekly or monthly, etc.).

One could always call the lender and ask them how they would feel about an extended payment holiday while one tries to patch up any holes in their own financial structure.

In 2009 during the swine flu pandemic, banks were very willing to partner/work with customers who needed an ear, even though this was also a bad time for banks as well. Asking ahead of time will show where your loyalties should lie when things get tough!

Identify Your Minimum Monthly Expense

Once you’ve gotten clear on what should be cut from your budget without jeopardizing your overall wellbeing and that of your family, you’ll have the peace of mind that comes with knowing how much savings you can live off for a little bit.

With this peace of mind, you’ll also be able to let go of some things like cable or cell phone service or premium-priced clothing brands.

All in all, anytime we can further lower our spending habits and decrease unnecessary expenses even minimally, it’s a good decision because it doesn’t only reduce what we owe on paper but also takes some weight off our shoulders by keeping us in the black until we get back on our feet!

Prioritize Your Emergency Fund

Saving for an emergency should be a top priority. Protecting ourselves and our families from potentially dire circumstances is important. If you haven’t yet started saving for emergencies, get started today by putting money aside, even if that’s $10 a month.

You can open an emergency fund. Or you can gradually save and plan your finances with a Neo bank, like Akudo, which helps you budget and spend wisely and attain financial freedom faster.

If you already own an emergency fund, check back with it to make sure you’re comfortable with the amount of money available in case of potential crises. How long could you live without having income coming in?

If that number scares you, it’s time to increase your savings!

Always Keep A Record Of Your Worst Case Scenario Budget

Once you’ve completed all of your worst-case scenario budget preparations and calculations and even saved the information in a spreadsheet or list of expenses that will stay the same and your expenses that will be cut – it’s time to sit back and relax.

Well, not really, but at least spend the time away from stressing over this, so you don’t give yourself more stress!

Wrapping Up

The importance of having a worst-case scenario budget should never be underestimated, as it helps you to plan for the worst and settle your financial future even in the most horrific times.