5 steps to create a crisis budget

By Olivia Gee ·

While hunkering down with a calculator, bills, loan schedules and spreadsheets isn’t everyone’s idea of a good time, creating a budget is always a good investment. In fair economic weather, it can help you reach savings goals or pay down debt faster, but if you’re facing tough financial times, it can be even more valuable.

A crisis budget should prepare you for the worst-case scenario: where you have reduced or no immediate income for a period and need to cover life’s essential costs. An emergency savings fund will help tide you over, but having a plan to whip your regular spending into shape will help get you through long-term financial uncertainty.

Firstly, you should have laid out a standard budget, which assesses your incoming and outgoing costs, and allows you to save some cash or break-even at the very least. Then, you’ll need to follow these five steps to rejig that budget to get you through the crisis.

1. Look at your crisis income and potential support payments

You’ll need to know if and how much money you’ve got coming your way before planning your spending. If a situation has impacted your employment status or ability to work, you may be on a reduced income. Assess this and investigate whether you’re eligible for any kind of government income support. Also consider any interest you may be making on a term deposit or high interest savings account, as well as other investments. Find out if it is accessible and when you might dip into it without penalties. 

2. Assess your wants and needs

You may feel your standard budget is already pretty lean, but reassessing your basic needs and the less-necessary wants is the first step in reducing these costs. 

For example…

Needs: Housing costs (rent or mortgage repayments), utility bills, basic groceries, internet and phone bills, transportation (public transport or car use and maintenance), some insurance policies, debt to be repaid.

Wants: Eating out, alcohol and other top-dollar treats, non-essential retail purchases, gym memberships, video streaming and other subscriptions. 

3. Cut costs in both categories

Naturally, you’ll be best-placed to begin cutting back on the non-essentials first. Life may be bleaker without these niceties, so find free or cheap replacements when you scratch them off the list. Instead of paying for a Netflix or Stan account solo, share subscriptions with a friend or get into free-to-air programming and streaming. Then quit the gym and start using free local sports facilities with friends or head online for a DIY bootcamp.

While you can’t cut necessities out of your budget, there are definitely ways to pay less for them. Shop smarter by avoiding name-brand items, choosing seasonal produce, shopping for bargains at multiple stores and buying secondhand. See if you can haggle down prices on your utilities and insurance, or ask if payments can be made in smaller installments. If it’s a no-go, see how you might save by switching providers. And wherever possible, choose the lowest-use option, from reducing how often you drive your car to minimising aircon blasts.

4. Investigate loan or debt repayment options

Paying off one or multiple loans will be a significant cost for many. But there are numerous options to minimise this burden in a crisis. Many banks and lenders will have standard financial hardship policies in place – and often expand these during wide-reaching crises like natural disasters – allowing you to alter repayment plans, perhaps by making smaller repayments or waiving fees. You may even be able to negotiate a pause on repayments. But keep an eye out for mentions of ‘interest capitalisation’, when interest accrues during the paused repayment schedule and ends up costing more over the life of a loan.

5. Make sure it all adds up

The final step is to make sure your incoming cash is equal to or greater than your outgoing costs. Let’s break down the difference between a standard month of income and spending compared to your crisis budget. 

In the following example crisis budget, the budgeter's monthly income of $4,000 after tax was cut by half. While their savings may be minimal, they’ve managed to break-even by cutting costs all round.

Not convinced you can haggle and scrimp on the necessities? Check out this Mozo research showing how Aussies could save $6,000 a year on household expenses. Don’t think you can find a cheap way to replace your gym membership? Get moving with these fitness apps for under $5.

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Olivia Gee
Money writer

As a personal finance writer at Mozo, Olivia investigates insurance, banking and property. After completing a double degree in journalism and media and communications, Olivia became a lifestyle editor at Time Out Sydney and freelanced for notable publications such as Guardian Australia and SBS News. Now she is Mozo’s resident car insurance enthusiast, and is certified (ASIC RG146 Tier 2) to provide general advice in general insurance. She also creates audible finance adventures as co-host of Mozo’s podcast, The Finance Burrito.