Back in the fall, I wrote a post called How much is your car costing you?, where I calculated that I was spending around $300/month for gas and insurance (11% of my net monthly income). And that didn’t even include maintenance like oil changes, repairs, or the actual cost of buying the car.
Even though I concluded that having a car was a clear “want” and not a “need,” I still depend on my car to lead the lifestyle I want for myself. Deciding to live in the suburbs, that’s the choice I made. And it’s the right choice for me now, but I’m not sure if it’s the right choice for me in the future.
When I start my new job later this month, I’ll be commuting from the suburbs to just outside of the downtown core. In the 6+ years I’ve lived here in Vancouver, I’ve never actually worked in Vancouver before… so I’m not sure what my commute will be like. Based on where I’m located, I think it will be similar to my old job (35-40 mins.). But the big difference is that when I’m over at BF’s house, he lives just 5 minutes away. AND since I’m working in such a populated area, most offices don’t have designated parking – so I had to rent a parking spot for $65/month.
Now that $65 parking stall is almost 50% less than any other stalls I’ve found in the area. That’s because I’m renting a space in an apartment building about 3 blocks from my office, and not in a regular parking lot. But if you combine that expense with having to rent a parking stall near BF’s house, my car costs have immediately risen by 25% to approximately $375/month.
I ran the numbers again, comparing my car costs with buying a transit pass, and my car still wins out even with this added cost. But just barely. If expenses go up again, I’m going to have to make some serious decisions. Even though I love where I live and I love my home, I’ve been spending the majority of my time in the city, and that’s only going to increase with this new job.
So maybe it will mean moving to a more central location down the road. Or maybe it will be as simple as letting go of some of my hobbies and buying a bus pass instead.
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.
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:
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?
My story is probably similar to yours: I didn’t create my first budget until I was 22 years old and halfway through college. I always knew I had to make one, but the process seemed overwhelming and I didn’t know how to even start. I knew I was spending more than I was making, but I didn’t have the discipline to stop, or the energy to figure out a way to make my situation better. So I kept chugging along, going deeper and deeper into debt.
During my last year of college, when I knew graduation and “real life” were just around the corner, I tried to create a student budget that I thought was realistic – but it failed. I’d get frustrated with myself, adjust the numbers, and fail over and over again. After a few months, I gave up. I ignored my bank statements and didn’t try budgeting again until I graduated with over $20,000 in debt.
When I look back at why my budget kept failing, I realized it was for four specific reasons:
No knowledge of past spending habits
It’s pretty hard to create a realistic budget if you don’t have anything to measure your numbers against. If you have no idea how much you spent on restaurants or entertainment last month, how will you be able to spend less next month? It seems like common sense to me now, but back then, I didn’t have a clue.
The basics of budgeting begins with figuring out how much money you will have for the month (your income), dividing it up based on what you want to do with it, then tracking where your money actually goes.
A budget is supposed to provide guidelines and goals to strive for, and when you’re accurately recording your spending habits – whether it’s in a simple spreadsheet, or with budgeting tools like Mint or Quicken – the numbers don’t lie.
I had never saved receipts before, or recorded my spending habits, so when I went to build my budget, I started arbitrarily plugging numbers into the spreadsheet that sounded reasonable to me. I had no idea that the $100 I thought I spent on groceries each month was actually closer to $250. And the $20 I thought I spent at Starbucks? Well, that number was actually closer to $50.
No defined goals
Most people budget because they want to achieve a financial milestone – like paying down their debt faster, saving for a down payment, or making a big purchase. While these are great goals to have, they aren’t specific enough to be truly motivating. Sure, I’d love to pay down debt and get ahead, but why am I doing it, and what do I actually need to do in order to achieve those goals?
For example, instead of creating a specific goal like, “I want to save an extra $100 per month to put into an Emergency Fund,” or “I need to pay down my debt by $300 each month,” I just knew I wanted to stop going further into debt, and didn’t take it any deeper than that. So without defining a way to get me there, I ended up lost. And my goal of stabilizing my debt (while I was still in school) remained a distant dream.
Quitting too soon
I stopped using my budget midway through my third month. I spent weeks creating a budget and kept track of the money coming in and going out of my bank account. But I was always going over my budget, and constantly spending more than I was making. It was frustrating not being able to see results, so I took the easy way out – I quit.
However, budgeting – much like exercising – takes time to see real results, and I was too impatient. I wanted to see immediate, concrete evidence that my efforts were paying off. For some reason, I had it in my head that I could eliminate my debt just as easily as I accumulated it. :) But at that point, I hadn’t even figured out how much my average monthly income was. And I also hadn’t taken the time to identify what areas I was constantly going over on my budget. If I had just taken an extra step or two to average out my numbers and figure out a way to decrease my spending in the categories I was constantly going over, I likely would have seen improvement over the following few months.
Related: How much is your car costing you?
Not realizing what a budget is meant to do
I saw budgeting as a restriction; a way to stop me from having fun. I knew I had to do it, but I wasn’t happy about it, and because of that, I had a really bad attitude.
I didn’t understand that the purpose of budgeting was to help me manage my money so that I could have even more fun with my life. And once I realized that my debt (and my unsustainable lifestyle) was going to always hold me back from achieving the goals that I wanted for myself (like home ownership, travel, and potentially starting a family), it finally clicked. A budget wasn’t about deprivation, it was about empowerment! By choosing where my money went, and living below my means, I was creating a better future for myself.