Tips for Making and Managing an Emergency Budget

Stressed married couple looking frustrated, having no money to pay off their debts, managing family budget together

DISCLAIMER: As the COVID-19 public health situation evolves, new regulations are being continually issued. This page/story/information may not include the most recent information.

By Courtney Nagle | Tuesday April 14th, 2020


Tips for Making and Managing an Emergency Budget – NFCC 

1.  Put It in Writing
2.      Prioritize “Survival” Expenses3.      Cut out Luxuries
4.      Downsize or downgrade where you can5.      Look for Deferment Options (But Be Careful)
6.      Be Mindful of Interest7.      Find Income Where You Can

One piece of advice that nearly every financial expert or advisor agrees on is that you should have an emergency fund. They may quibble over the exact size of the emergency fund, but most recommend somewhere between three and six months’ worth of expenses. There are even emergency fund calculators to help you decide on the right amount.

This is incredibly important advice, but it does not help much once you are already in the midst of an emergency. When the unexpected occurs, you need a plan for moving forward. Whether you already have an emergency fund or not—you need an emergency budget. Here are some tips for how to use your emergency fund or other money sources wisely so that you can maintain financial health during an uncertain period.

Put It in Writing

This is a good rule of thumb all the time, but especially when you are in crisis mode: keep a written budget. While some people can budget “in their heads” and manage money pretty well without writing anything down, you should not use these methods during an emergency. There is too much at stake, so be sure to use a formal budget, whether that means pen and paper, a spreadsheet, or one of the many online budgeting tools available. Doing so will help you see exactly where your money goes and make the necessary changes to your planning and spending from month to month.

Prioritize “Survival” Expenses          

When you are trying to make ends meet during an unexpected event, you need to focus on the expenses that matter most and that are required for your survival. These are your basic needs—food, water and shelter. These items should be at the top of your budget and paid before anything else in most circumstances.

There are other important expenses too, so you should put your leftover funds toward them. They will depend on your specific circumstances. For example, if you need a car to get to work and it needs repair then that could be a “survival” expense, because not having the car could cause you to lose your job and suffer a bigger financial consequence. Another example might be childcare. If stopping childcare would mean you couldn’t work, then that might be an expense you need to prioritize above others.

Medical expenses, including prescriptions, are also important expenses. You will want to continue receiving any prescriptions you need to be taking during this period. As for medical operations or doctor’s visits, those bills are important too. However, it may make more sense to arrange a payment plan with your provider instead of giving up a large amount of cash.

Cut Out Luxuries

On a similar note, you should cut out as many luxurious or non-essential expenses as you can. These expenses may be totally separate categories in your budget, such as trips to the movies or other entertainment. However, they could also be luxurious items within your food and shelter categories. For example, you may need to alter your grocery budget to limit the amount of high end items you buy, and focus on cheaper recipes instead. Or, you may need to stop eating out at restaurants.

You should also consider cutting subscription and membership services. This could include cable, Netflix, Amazon, Spotify or any similar service. It could also include subscriptions to print or online publications and gym memberships. Be sure to read the fine print when you cancel these services. You may be able to freeze them for a set number of months instead of cancel.

Downgrade or Downsize Where You Can

Like with cutting out luxuries, consider downgrading items or services where you can. This could be something as simple as not cutting out Netflix altogether, but changing your subscription to the basic plan. Or, maybe you have a car that’s too big or expensive for your needs. Now may be the time to sell it and replace it with a smaller, more affordable car. Similarly, maybe your lease is coming up soon and you could save hundreds of dollars by moving into a smaller place or a different part of town. These are just a few examples of how you might reduce an expense without sacrificing too much.

Look for Deferment Options (But Be Careful)

In times of crisis, service providers are often able to help. Utility providers may waive late fees or suspend shutoffs. Landlords may delay evictions or extend rent periods. Credit card companies may offer favorable payment plans for large balances. Many of these deferment options or concessions have been offered in the midst of the COVID-19 pandemic. In other emergencies that are not as widespread, consumers will need to seek out such arrangements on a case-by-case basis and get them in writing.

These options can provide significant help in keeping your head above water, because they can allow you to meet your most important expenses. However, do not get complacent. You will still owe utilities, rent, and other such expenses in full at a later time. So even if you get short-term relief, be sure to continue budgeting for these expenses and paying as much you can toward them. You may opt to make the payments to your own savings account until bills become due.

Be Mindful of Interest

If you delay debt payments in a pinch in order to focus on the most important expenses, be sure to keep interest in mind. Delaying payments on interest accruing accounts will mean that you pay more in the long-run. This may be necessary to get you through a short-term difficulty, but you need to keep it in mind and plan to prioritize your high-interest debt once your situation stabilizes.

Find Income Where You Can

We have talked mostly about how to budget for expenses and how to reduce those expenses. You should also think about the income side of the equation. Making more money during an emergency can be a financial lifesaver. Consider if you have the capacity to take on additional hours or even a second job. You might also consider making money by selling items you do not need.

Whether you have a large emergency fund or not, you certainly need an emergency budget when things get tough. These tips should help you build a basic plan for how to navigate your finances each month during unexpected circumstances. For more help with a personalized plan, especially if you are facing significant credit card debt, contact an NFCC-certified credit counselor.

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Section 13(1)  When a licensee establishes a debt management plan for a debtor, the licensee may charge and receive an initial fee of $50.00

Section 13(2)  A licensee shall attempt to obtain consent to participate in a debt management plan from at least 51%, in number or dollar amount, of the debtor’s creditors within 90 days after establishing the debt management plan. If the required consent is not actually received by the licensee, the licensee shall provide notice to the debtor of the lack of required consent and the debtor may, at its option, close the account. If the debtor decides to close the account, any unexpended funds shall be returned to the debtor or disbursed as directed by the debtor.

Sec. 14. (1) A contract between a licensee and debtor shall include all of the following:

(a) Each creditor to which payments will be made and the amount owed each creditor. A licensee may rely on records of the debtor and other information available to it to determine the amount owed to a creditor.

(b) The total amount of the licensee’s charges.

(c) The beginning and termination dates of the contract.

(d) The principal amount and approximate interest charges of the debtor’s obligations to be paid under the debt management plan.

(e) The name and address of the licensee and of the debtor.

(f) Any other provisions or disclosures that the director determines are necessary for the protection of the debtor and the proper conduct of business by a licensee.

Sec. 18. (1) In addition to the fee described in section 13(1), a licensee may charge a reasonable fee for providing debt management services under a debt management plan. The fee under this subsection shall not exceed 15% of the amount of the debt to be liquidated during the express term of the plan.

(2) A licensee may offer a debtor the option to purchase credit reports or educational materials and products, and charge a fee to the debtor if the debtor elects to purchase any of those items from the licensee.  Fees charged under this subsection are not subject to the 15% limitation on fees described in subsection (1).

(3) Except for a cancellation described in subsection (4), in the event of cancellation of or default in the performance of the contract by the debtor before its successful completion, a licensee may collect $25.00 in addition to any fees and charges of the licensee previously received by the licensee. This $25.00 fee is not subject to the 15% limitation on fees and charges under subsection (1).

(4) A contract is in effect when it is signed by the licensee and the debtor and the debtor has made a payment of any amount to the licensee. The debtor has the right to cancel the contract until 12 midnight of the third business day after the first day the contract is in effect by delivering written notice of cancellation to the licensee. A cancellation described in this section is not subject to, and a licensee shall not collect, the fee described in subsection (3).

(5) If a debtor fails to make a payment of any amount to a licensee within 60 days after the date a payment is due under a contract, the licensee may, in its discretion, cancel the debt management contract if it determines that the plan is no longer suitable for the debtor, the debtor fails to affirmatively communicate to the licensee the debtor’s desire to continue the plan, or the creditors of the debtor refuse to continue accepting payments under the plan.

(6) A licensee shall not contract for, receive, or charge a debtor an amount greater than authorized by this act. A person that violates this subsection, except as the result of an inadvertent clerical or computer error, shall return to the debtor the amount of the payments received from or on behalf of the debtor and not distributed to creditors, and, as a penalty, an amount equal to the amount overcharged.

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