Dec 03 2008

Preparing for a worst-case scenario

I don’t want to be a big, stormy raincloud. But, the economy has been pretty rainy lately, and it’s probably best to prepare with some version of an umbrella.

I’ve been thinking about what we would do if we had a big financial emergency, such as a massive medical expense or if Shane lost his job. We have a six-month emergency fund, but we’d want that to last as long as possible.

Immediately, we’d cut:

– Cable $23/month
– Internet $20/month (we can sort of pick up a wi-fi signal, or we could head down the street to McDonald’s, Panera, or the library for more wi-fi access points)
– Stop contributing to our insurance savings account ($110/month) and make monthly payments to the insurance companies instead to free up that savings for immediate expenses

– Eliminate all unnecessary driving to conserve on fuel and lengthen the time between oil changes (we do this already, I think)
– Cut back on our groceries to the bare minimum, spending $35-40/week on meals that will get the job done
– Eliminate all purchases beyond paying bills, gas, and groceries. No restaurants, no entertainment budget, no exceptions.

We could do all of these things on a moment’s notice, if it came down to it. I’d expect that would free up at least $350, if not more, out of our monthly spending.

If we needed to take it a step further, we could do something drastic and sell our car.

Right now, the car is a liability. We owe about $8,300. Kelly Blue Book thinks it’s worth around $9,500. If things were absolutely dire, we’d try to sell the car and pick up something for around $1,000 and pay for it in cash. That would free up our $277 monthly car payment. The drawback to this strategy is $1k cars might be more likely to break down than newer vehicles. We could be sinking more money into keeping the car running. No good.

The alternative would be having no car, and walking or using public transportation. A hassle, but doable in the short-term. And, no car means no car insurance, so that would be even cheaper.

Hopefully, we won’t have to implement this emergency plan. But, I do feel a bit more comfortable knowing that in theory, we could live on $1,200 per month if we absolutely had to. It would be tough, but it would be temporary.

What about you? What’s the bare minimum you’d need? Are there things you could cut from your budget, or are you already to that point? Would you sell your car? Move to a cheaper apartment?



13 Responses to “Preparing for a worst-case scenario”

  1. I love your site! This is what I’m working on doing now. The problem is our house payment is $1300. But I guess that I shouldn’t complain at least we are still making it. Most of our friends upgraded but we stayed in our little tri-level. A choice many are regretting. But I still wish that we could get our monthly expenses down a little more.

    sonyaann’s last blog post..Christmas Presents

  2. I keep running the numbers on our budget to see if we could make it on one income. It’s close, but we could do it. We’d have to cut out some things, but it would be doable. It’s scary to have to think this way, isn’t it?

    MrsMoney’s last blog post..Credit Card Ratings

  3. Cutting back to the bare minimum wouldn’t be too hard I dont think. We’re already almost there, but we could certainly cut back on a few more categories. We could cut:

    1. entertainment money
    2. grocery spending (we eat well right now)
    3. high speed internet ( i could downgrade)

    Those are a few things we could cut, but as it is we’re pretty much at a base level budget as it is. If we really, really had to we could sell our house and downgrade ($1600 payment) since we don’t have any kids either, but i’d prefer not to do that. We probably wouldn’t have to as that is our only debt.

    Peter’s last blog post..Money Matters

  4. I’ve actually been thinking about this a lot lately. I think now more than ever it’s important to have a financial backup plan.

    Check out my blog tomorrow if you want to see what we’d cut. :)

    Karen’s last blog post..Online or in-store shopping: which is more frugal?

  5. Kacie, this just happened to us. My husband was laid off in September. We have made a lot of cut backs including going down to one car.
    Another thing that has helped us get by is that we applied for free/reduced lunch at our daughters’ school. That saves us about $15 a week on groceries. Our girls enjoy eating a school lunch – previously we allowed them to buy lunch once a week only so this is a big treat to them!

  6. I think this is a good exercise. Hopefully you won’t have to implement it but it is a good thing to think about. I couldn’t cut the internet, myself. One good reason to think about it is many people have things they could cut back on without much trouble. And maybe thinking about the worst case will make you realize cutting back some things now to build up some additional cash will mean you can keep your internet if things get bad.

    Curious Cat Investing Blog’s last blog post..USA Manufacturing Output Continues to Increase (over the long term)

  7. It is a scary thing to think about and you are one of the few that actually plan for it.

    As a worst case, you can usually find a minimum wage job even it was part time while you were getting back on your feet.

    It sure makes you sleep a lot better a night knowing you can make it a minimum of 6 months and longer with the cuts you mention above.

    Adam’s last blog post..Opportunities…. Do You Take Them?

  8. I feel like I’m boring everyone with my story, because I think I’ve told it so many times….We’ve been doing this. We had a huge medical expense in March and then my husband lost his job. He’s working a part-time min-wage job right now, because that’s all he’s been able to find.

    Unfortunately, we have much higher expenses than usual because we have to be on COBRA insurance from my husband’s old job – it’s much higher than even our rent. We had ongoing medical expenses and just when we were about to get something much cheaper, I got pregnant so now we can’t switch until the baby is born.

    We cut everything else. We got the student loans deferred. We’ve probably spent about $100 a month in groceries by eating from our stockpile and buying all we can with gift cards, at CVS, etc. Our entertainment is staying home and playing with our one-year-old. With no daily commute, our gas spending plummeted. I have a part time job and they pay for my internet and cell phone because I need both to work from home.

    We’re moving in with my parents in another city next week. We’re hoping the job market is better in a bigger city. We also won’t have to pay rent, utilities, or renter’s insurance. They will even feed us, though we want to help out when my husband finds a job. When the cell phone contract is up in March, we’ll probably get a prepaid phone to share between us. Our expenses are going to be health insurance, car insurance, gas, and major crazy savings!! My parents have kindly offered to let us stay as long as we need to, but we’re hoping a job is just around the corner and this will be temporary.

  9. Oh dear. That’s rougher than rough. I’m really sorry you’re having to go through all of this right now. It sounds like you’re doing the absolute best you can, and you should be proud of your efforts! You’re doing a great job, despite your awful circumstances.

    I hope that things will get better for you and your family soon.

  10. Just a thought on your car front… rather than selling your current car and taking the $1000 to buy a total beater, you might consider proactively selling your current car, and applying the $1000 to a less expensive car (we recently purchased a 10 year old Honda for about $4000, and it’s in great shape; I’m not sure we could say the same about something that came a lot cheaper!) That way, you’re probably cutting your monthly car payment, plus your monthly insurance, because the car isn’t quite so nice, but you’re not risking major increases in repair and maintenance costs…

  11. (First time commenter)
    We recently had a job-loss scare and everything you wrote about went through my mind. I started with the least priority stuff – eating out, onstar, entertainment, cable, my daughter’s dance lessons, internet & cutting back on certain food. We have a newer SUV and are still making payments, so that would have to go – we could take the bus if we have to go out. We’ve lived very frugal and pretty tight for the last 12 years so we don’t have much of a savings. Instead, we have given all of our extra money to our kids’ savings accounts for college. If we had to tap into that we could but I would be guilt ridden.

    Luckily, my husband was spared this time but that did not stop me from re-evaluating what we spend. I’ve promised myself that I have to get a better savings going. Thanks for inspiring me!

    BTW- saw you live in the burgh – me too.

    Jamie’s last blog post..Crafts & Stuff

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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