Anyone can find themselves in a financial crisis at any time. The good news is, you’re probably not alone. A recent survey from Bank of America found that nearly half of Americans are struggling to make ends meet right now.
Even if it seems like everyone else is doing better than you, the good news is that there are things you can do to turn your financial troubles around and get back on track.
An emergency budget is one of those things. A well-established emergency budget will help you take control of your finances when the unexpected happens and give you the resources you need to get back on track again – fast.
With an emergency budget, you’ll know exactly how much money you have available to spend in case of an unexpected expense or cash out after a big expense so that it doesn’t compromise your regular saving routine.
If you’re anything like me, your bank account is probably feeling the effects of all-things-holiday. The gifts might be wrapped and hidden away but that doesn’t mean you won’t still be feeling their pinch.
And if you’re anything like me, spending a little too much money on presents isn’t the problem – it’s the fact that you can never seem to get back to normal. That being said, the holidays are coming up once more and it may time to start thinking about what your finances will look like in the new year.
Fortunately for those who find themselves in a similar situation every year, there is hope! An emergency budget is one of the best ways to get control of your debts and stay on track moving forward. Here’s how you can make one today:
What is an emergency budget?
Budgets are one of the most helpful things you can do to take control of your finances. A budget is simply a plan for how much money you want in each category throughout the year. For example, if you are saving for a car, a budget will tell you how much you need to put aside for the down payment, interest payments, and maintenance costs.
If you are looking to save for a wedding or another special occasion, a similar budget might be used to figure out how much you need to save for the honeymoon or other wedding expenses.
There is a difference between a budget and a spending plan. A budget is how much money you want to spend in each category, while a spending plan is the actual amount that you spend in each category.
With a budget, you are trying to ensure that you have a balanced life while with a spending plan, you simply want to know how much you have spent in each category.
Set a date to start
The first step is to set a date to begin your budget. While it is ideal to begin your budget at the beginning of the month, it is also okay to begin your budget at a different time of year. This will depend on your personal finances, but you should never start your budget in the middle of the month.
Why is this so important? That’s because of the seasonal spending that occurs throughout the month. This can cause you to spend more than you normally would if you only had one month to take care of bills. If you don’t set a date, you may find yourself budgeting throughout the year, which is not ideal.
Make a list of your debts and figure out the minimum payment
When you start your budget, you will need to have a list of all of your debts, including the amount owed, when you would like to pay them, and how often you would like to pay them. Next, you need to figure out the minimum payment on each of your debts.
This will vary depending on each debt and your financial situation, but it should be somewhere around 10% of the debt. While it is okay to pay more than the minimum payment, you want to make sure that you are always in good enough financial standing to make payments on your debt. If you are consistently falling behind, it might be time to go see a professional.
Stick to the Minimum Paying Out Of Each Debt
Next, you need to go through each of your debts and determine if you would like to stick to the minimum payment or if you would prefer to pay more. Some debts, such as your home or car, will likely be worth more than the minimum payment. If this is the case, you may prefer to pay more.
On others, such as your credit card, you will likely have to pay the minimum payment. If this is the case, you may prefer to stick to that payment. Once you have determined which debts you would like to pay more on, and which you would like to pay less on, you can move on to the next step.
Take a look at your spending and take some necessary cuts
Your next step will be to take a look at your spending and see where you can make some necessary cuts. It’s okay if you don’t know where to start here, but you should start by deciding what you don’t want to spend any more on.
Your debt is not a fairytale and it is okay to make cuts where needed. If you find yourself wanting to spend more than your emergency budget, take a good look at your expenses and see if you can make any necessary cuts.
By now, you know what you need to do to get started on an emergency budget. However, it’s important to remember that the best budget is one you keep up.
So make sure you don’t fall behind on your debt and make sure you are always on top of your payments. If you follow these steps, you can ensure that your finances are in good standing before the new year rolls around.