Give Me Back My Five Bucks

Creating a bare-bones budget

Most personal finance experts will tell you that you need between 3-6 months of living expenses saved in an easily accessible Emergency Fund. Having cash as a cushion is always a good idea – but when you run into hard times, it’s how you choose to spend your emergency savings that can mean the difference between getting through your financial crisis, or having to make some truly difficult decisions.

You might already have a budget created for your monthly expenses, but having a budget in order to deal with a financial emergency is also really important – and creating one before a crisis hits will make it a lot easier for you to make the transition.

Related: When is it okay to use your Emergency Fund?

Over the past weekend, I took a hard look at my finances and created a bare-bones budget for my current situation. Employment Insurance will just be enough to cover all of my expenses – mortgage, strata, hydro, cell phone, internet, car insurance, and about $100/month for groceries. I’d love to be able to get through this without having to touch my Emergency Fund – but I’m pretty realistic and know it’s likely not possible. But my stress level is significantly lower knowing that I’ve got some money in the bank set aside for exactly this kind of situation.

Here are a few tips on how to create a bare-bones budget:

Fixed vs. discretionary expenses

Typically when creating a budget, you would divide your categories into two separate spending groups – fixed and discretionary. Fixed expenses can also sometimes be reduced, but may require a longer time to see any benefit – such as waiting for a lease to run out in order to move to a cheaper apartment. This means the easiest way to lower your budget is to focus on your discretionary spending.

Here is what my bare-bones budget looks like compared to my current February 2014 budget:

barebonesbudget

You can see, I was able to eliminate $765 from my monthly budget without too much problem. And I know that if needed, I could cut down my budget even further. For the next few months I will use this budget as a guide for my monthly expenses, but if it gets too tight, I can eliminate internet, lower my cell phone bill, and get rid of my car insurance. That would likely save an additional $180/month.

Dealing with debt

I’m extremely thankful that I don’t have any debt, aside from my mortgage. However if you’re in debt, you generally cannot escape your debt repayments without serious repercussions. You might be able to call each creditor to inquire about lowering your payments until you can get back on your feet. And if you have debts that are tied to a car, boat, motorcycle, etc. – you might need to consider selling and putting the money towards the loan instead. There’s a chance you could end up taking a loss in the process, but eliminating or reducing your monthly payments might leave you ahead in the long run.

Defer if possible

Many expenses cannot be avoided, even when you’re in a financial crisis. If you can, avoid replacing or paying to repair the items until you’re back on your feet. For example, if you microwave or dryer has broken, re-heat your food on the stove and hang-dry your clothing instead. You might not be able to get away without fixing your refrigerator, for example, but make sure to look for alternative solutions too. If a friend or relative owns a small fridge, or has a spare one in the garage, ask to borrow it until you can get yours fixed.

Once you start putting the numbers on paper, you can start to see how much money you will need to spend each month, and how long you can live off of your savings.

While I have been able to do a lot for myself to make sure I’m okay financially while I’m laid off, I can’t put a price tag on how much my friends, family, and BF are keeping me sane. And the positive and thoughtful blog comments, texts, tweets, and e-mails I’ve gotten from so many people have really put a smile on my face. So thank you. It’s really, really appreciated. :)

Do you have a bare-bones budget created in case of an emergency?

Author: Krystal Yee

I’m a personal finance blogger and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, climbing, playing field hockey, or plotting my next adventure.


Comments

  1. Cassie says:

    My bare bones budget is almost identical to yours. Adding it all up I came up with the number $1,800, but I rounded it up to $2,000 to account for anything that may pop up or thaI I may have forgotten. I’m just working on actually getting that money put away now.

    Best of luck getting back on your feet :)

  2. MA says:

    That car insurance number is pretty low for Vancouver to begin with, but if you were regularly driving to work you should be able to pare back your coverage to pleasure use only and save another $10-20 per month.

  3. I’ve spent the past year working to get my budget as low as possible. It currently is the same as your bare bones budget. I’ve just had too many tough times in the past so my goal is to keep my expenses as low as possible. Unfortunately I still have debt and once I pay one of the remaining debts it will make a huge difference to my bottom line. I think that you’re smart for reviewing everything and eliminating whatever you felt was unnecessary. I’m convinced that you will find something soon and am sending you good vibes.

  4. Nice work on cutting down the transportation expense. We try to keep some cash in our TFSA just in case something comes up. It’s impressive that you have such a detailed monthly budget as most people don’t. It feels a lot better when you know you can control something (ie monthly expenses)

  5. Leigh says:

    This was a good exercise! My bare bones budget would cover my mortgage, HOA dues, (property taxes/12), electricity, internet (downgrading to the cheapest, so -$20), insurance/12 (I’m already on pleasure driving only), groceries, (vehicle tabs renewal/12), passport renewal, toiletries/household goods, a new pair of running shoes per year, driver’s license renewal, and medical.

    I estimated the cost of medical at the cost of adding me to my boyfriend’s health insurance and then $50 for services. That would only work if we were living together, so if we were not, I would actually have to pay for either COBRA which is ~$400-500/month for my plan I think or buy insurance on the private market for closer to $200/month with a VERY high out of pocket maximum (~$6,000/year).

    That all adds up to $2,300/month, about $1,600/month of which is completely fixed (mortgage/HOA/property taxes) and then almost $200/month for medical and about $500/month for the rest. I guess that’s why they say to make sure you buy a home you can afford!

  6. Joy says:

    Just a note, for those who have a car loan, you couldn’t just get rid of all the insurance if you weren’t driving anymore. You’d still have to have the fire & theft portion of it. And, failure to do so may result in monthly fines from the car loan company.

  7. Jacquie says:

    Sorry to hear about your job, Krystal!

    I have a question about your budget. Aren’t strata fees and utilities pretty much a fixed thing? I didn’t think you could lower it, nor does it fluctuate month to month. So how are you able the save the combined $15 in those areas?

    • Krystal Yee says:

      Yeah they are fixed. I just over-estimated how much they were going to cost me in February (strata fees just went up). So now that I know exactly how much the fees are, I just corrected it for the “bare-bones” budget version. As for utilities, it’s based on usage. I only pay for how much I use. In warmer months, my utilities only cost me around $12-18/month, so that’s what I’m anticipating as we leave winter behind. :)

  8. Sorry to hear about your Krystal. I think you’re doing really well by adjusting your situation. So many people ignore it and keep spending the same amount of money.

  9. SP says:

    I have in the past, but I haven’t in a long time. There is a ton of room to cut. We keep the fixed expenses as low as we can so we can splurge on the fun stuff (or save more…)

  10. Erin @ My Alternate Life says:

    My expenses with any flexibility are gas, food, entertainment, and misc. for which we pay around $800 a month total. We can cut this by about $200 if necessary, maybe $250. Other than that, it would be hard to decrease anything, but maybe our creditors would help us out for a short period of time. I’d also bring our data plan down to the lowest possible amount (which only saves $10/month) and cancel Netflix/Hulu (another $16/month).

  11. Anonymous says:

    Great tip … I go one step further though.

    Take your budget ($1785) and multiply by 300.

    This number (~$536K) is the amount of money you would need invested to pay for your bare-bones lifestyle.

    If you had $536K invested and received a 6-7% after tax return, you could take out ~4%/year to pay for your bare bones life-style.

  12. I really enjoy your simplistic approach to budgeting. I’ve never thought about creating a bare bones budget, so thank you for opening my eyes to that!

  13. I also find your approach very relieving, it’s great to see how you took control of the situation and didn’t let it stop you from living your life. I’m a student just a couple months shy of graduation, and I’m trying to start my budgeting plan now before things get over whelming, so your blog has been a great help for me! I think it’s awesome that you have a bare bones budget because I never would have thought how much easier and less stressful that would be to have during those tough times. Might as well plan ahead so the stress isn’t overwhelming if something ever does happen (knock on wood it doesn’t though!). Pull through :)

  14. I am currently unemployed and collecting EI, and am wondering how you claimed your freelance income while on EI? I only have a small amount (<$150/month), but I know that I need to claim it – I just don't know how. Any advice? Thanks!!

    • Krystal Yee says:

      When you declare your income reports online, there’s a question that asks if you’ve made any money since your last report. If you answer yes, then they ask you how much and who the employer is, etc. That $ is deducted from your EI payment. And if it’s your first time declaring freelance income, it might trigger a message that forces you to call in and speak with someone (happened to me a few months ago when I was on EI and claimed freelance $). There’s a threshold that you can’t go over, otherwise you have to go through a whole different process. Can’t remember what that threshold was, but I was well below it when I had to call in.

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