Every family should have two budgets: their regular monthly budget and a crisis budget. The crisis budget needs to be prepared in advance so that it can be activated immediately upon the loss of a job or other financial shock…
Families should attempt to live as far below their means as possible. They should make every attempt to trim expenses in every budget category that is feasible. The goals of budgeting are to ensure that families are saving more than they are spending, and to ensure their money is being directed to the correct priorities (e.g., tithing).
But it is not feasible to ask families to cut all their spending to the bone and live like that all the time. This is because God gave us our incomes, in part, to enjoy life. There are many things in life that bring us joy and refreshment, and we shouldn’t deny ourselves these things. The only thing we should deny ourselves is to spend them into excess. Humans can turn any of God’s blessings into a curse, after all.
THE IMPORTANCE OF PREPARING A CRISIS BUDGET IN ADVANCE
That’s why it’s a good idea to prepare a crisis budget in advance. The crisis budget prepares the family for the day of reckoning, which may happen when the primary breadwinner loses his job. A job loss will send a severe shock throughout the family. It will threaten to plunge them into a financial crisis.
But a family who has applied the Christian principles of responsible financial stewardship will be prepared to absorb this shock. They will have over six months of expenses saved in an emergency fund, for starters. This will buy them time to adjust and secure a replacement income stream
But I think they should also have a crisis budget prepared and ready to deploy.
The crisis budget tells the family how they will truly slash all spending to the bone and cut out anything frivolous. It is their plan for navigating the tumultuous waters of unemployment. The main benefit of creating a crisis budget in advance is that it prepares the family in advance, which positions them to be more successful deploying it when the time comes. Going through this exercise aims a powerful psychological weapon at the problem, which is to prepare the family with an if/when-then plan.
The plan, simply stated, will be something like this: “If one of us loses our job, then on that day we will put into action our crisis budget and begin slicing expenses to the bone.”
It is specific and prepares your mind in advance for the event that triggers your reaction. By prefetching what to do when the event occurs, you will already be predisposed to putting the plan into place.
In his book Pre-Suasion (2016), author Robert Cialdini wrote that if/when-then plans are “designed to help us achieve a goal by readying us (1) to register certain cues in settings where we can further our goal, and (2) to take an appropriate action spurred by the cues and consistent with the goal.” Establishing if/when-then plans make us more likely to accomplish our goals because we “become prepared, first to notice the favorable time or circumstance and, second, to associate it automatically and directly with desired conduct.” [Excerpts from Chapter 9.]
THE CRISIS BUDGET
One site explains that a crisis budget “is different from a typical household budget because it helps you identify the items on your budget that are essential and those that are not. When an event happens in your life that drastically affects your finances you’ll need to make certain adjustments to your spending lifestyle in order to be able to stay afloat until things are back to normal for you. Too often, people faced with a financial crisis fail to make appropriate adjustments to their lifestyle and end up being unable to meet their primary obligations, such as their mortgage or rent payments, which should actually be your top priority.”
Certain categories of expenses, like entertainment and cable tv, are not necessities. Therefore, a family should temporarily eliminate them until they have emerged from the crisis.
First, the family needs to make two lists: required and necessary expenses, and nice-to-haves. Here is one site’s examples of needs and wants:
- Rent/Mortgage (Need)
- Utility bills (Need)
- Groceries (Need)
- Gas for car (Need)
- Insurance (Need)
- Cable TV (Want)
- Dining out (Want)
- Movie tickets (Want)
- Hair/cosmetic expenses (Want)
- Expensive cell phone data plan (Want)
The family should ask themselves what they can temporarily live without, then cut or drastically reduce those expenses.
They should also figure out how to reduce their necessary expenses. The family must pay their utility bills because they are necessary expenses. During a crisis, however, they can cut back heating and cooling to reduce the monthly bill. The family should prepare to sacrifice some comfort.
Likewise, groceries are a necessary expense, but the family should be prepared to take steps to reduce those as well.
The next step is to estimate income during the crisis. This should be an extreme estimate to prepare for the worst. If the household is a one-income household where the husband works and the wife manages the household, then his income stream will vanish. Will there be any income at all during this time? Some possible sources are:
- A severance package, which could provide a little money
- Unemployment insurance from the government
- Part-time jobs, worked either by the husband, the wife, or older children
- Emergency relief from the church
TELL THE CHILDREN
The next step: don’t leave the children in the dark. They should be involved and help do their part:
Explain to your kids, in terms they can understand, what the problem is and how you plan to fix it. If you attempt to hide what’s really going on, they will only assume the worst. Chances are, if you haven’t explained what’s going on yet, your kids already know something is wrong. They don’t know the specifics of what’s wrong, but they already sense a difference and they know it’s not a good one. By explaining it to them, even in the simplest of terms, you can put their young minds at ease and prevent them from worrying needlessly.
Families should be out of debt except for a mortgage. But during a temporary crisis, it may be possible to negotiate with lenders. One site explains:
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.
Loan forbearance is another term for financial hardship programs offered by lenders. Be aware that forbearance plans don’t free the debtor from the obligation to pay any deferred payments. In fact, they usually have to be repaid with interest, either in a payment plan (on top of the resumed monthly payments) or through a loan modification. But nevertheless, the interest charge will likely justify buying time to get back on their feet without plunging into bankruptcy. Christians should repay their debts.
Another site recommends prioritizing secured debt (mortgages, car loans) over unsecured debt (credit cards, unpaid medical bills):
Unsecured debts include any without collateral attached to them, such as personal loans, unsecured lines of credit, credit cards, old medical bills, etc. Even though you are responsible for these payments, these may have to wait until your other basic living needs (food, housing, medical care, etc) are covered. Collection calls may result if you fall behind for a few months and it will affect your credit. But it’s more important that you have a roof over your head and food on the table.
Before pausing those payments, however, the family should make every possible attempt to contact their lender, communicate their problems, and attempt to negotiate a solution. If these bills are turned over to collectors, credit scores will take a hit.
CONCLUSION
Preparing the crisis budget in advance will also prepare the family to take the steps they must take to minimize the impact to their life and well-being that a financial hardship like a job loss will have.
It will also help them be less of a burden on the church during hard times.
If prepared in advance, the family will be more likely to implement it. They should also seek help from their church. Hopefully the church has put into place an emergency relief program for which the family qualifies.
Certain expenses must not be eliminated during the crisis: insurance, both life and health. The family may be tempted to let their coverage lapse, but the deacons should counsel them on the importance of maintaining coverage. Offering to pay the premiums during the crisis is a good way deacons can help the family. If possible, this arrangement should be worked out in advance through a pre-qualification program.