Last week, I revealed my budget to the world. It was kind of scary, putting those numbers out for people to ogle at, but I’m also happy I did it because I got some great feedback.
Adding those numbers up definitely got me thinking though. I haven’t been very vigilant when it comes to having a plan in case of job loss. As in, I haven’t gone through the emergency scenario where either my husband or I lose our jobs. I definitely haven’t done it since we moved into the new place, so I thought that I should give that do a “Budget Crash Test”. You can read what I’ve written about living on one income before, here and here.
As you saw last week, this is my regular monthly budget:
This doesn’t include a significant portion of our income that goes to both long term savings (retirement savings, emergency fund) and short term savings (travel, home furnishings). It’s just what we actually consume each month.
In total our expenses run us $2,166 per month. If one of us were to lose our job, we’d go into emergency mode, and slash a lot of spending. Here’s what our budget would look like if we were in emergency mode:
As you can see things are slashed. Here’s what I reduced:
- Gas is down, because if there was a job loss one of us would be driving less.
- The pet fund has gone to zero, since that budget mostly funds yearly vet visits, not month to month expenses.
- Grocery spending gets cut by a third since we won’t be dining out much if one of us is unemployed.
- Personal spending is cut because hey, that can wait (it’s not slashed to zero because there are some things we need to buy regularly like prescriptions, etc)
The total minimum amount we’d spend on our emergency budget every month is $1,626. If you multiply that by six, you’ll get $9,756, which is where I got my 10k emergency fund target from.
Scenario 1: Husband Loses Job
Now, if my husband’s business took a nose dive and he earned $0 for a few months, I could cover the entire cost of our emergency budget from my own income, so we’d be safe until he found another job. In fact, I’d still have cash left over so I probably wouldn’t slash our budget as hard is I have in the example above. If my husband loses his job, we’re ok.
Scenario 2: I Lose My Job
This scenario is a little more scary, because I’m the primary breadwinner of the family. Now, my husband is an entrepreneur, so his income is variable. That means that some months he makes a lot, other months less. Since this is a worst case scenario drill, let’s assume that his income is also unusually low. Let’s assume that I’ve lost my job, and he is only making $1,000 per month (unlikely, but not unheard of).
That leaves us with a $626 shortfall every month.
Step 1: Employment Insurance
Fortunately, applying for employment insurance would cover that deficit in the short term. I also bring in a decent amount of freelance work, and if I’ve lost my job, you’d better believe I’d be shaking that tree pretty hard while looking for another job.
Step 2: Emergency Fund
If I didn’t find another job before my employment insurance ran out and I wasn’t making any freelance income (unlikely), I have my emergency fund. Right now, my emergency fund of $2,610 could cover this $626 shortfall for a little over four months. Once it’s fully funded at 10k, it could cover that shortfall for almost 16 months.
Step 3: Debt, Family Members
After my emergency fund runs out, we’re in disaster scenario zone that involves moving back in with parents and lines of credit, I’m sincerely hoping our disaster scenario drill never goes that far.
So, if one of us loses our jobs, we’ll be ok. BUT, this does remind that I need to get my ass moving when it comes to getting us some disability insurance, because job loss can happen through more than just being fired. It can happen due to disability, and in that case it can be harder to just pick up and find another job.
Have you run your finances through a disaster scenario lately? What does your emergency budget look like? How long could you endure unemployment before your money ran out? I want to know!