Once you’ve created a budget, whether it’s for business or personal use, you may think it’s done. However, life is not static. Your budget shouldn’t be, either.
No matter what life throws at you, it’s important to be prepared to adjust your finances to address those changes, which could be either temporary or long-term. In other situations, such as the current COVID-19 pandemic, everything is uncertain.
Whether you have lost your job outright or seen it scaled back, or even if you are still working (some more than ever), you should consider creating a budget that addresses an emergency situation like the current crisis. Your traditional budget might have worked under normal circumstances, but now there is a new normal. Things may have changed significantly for you, depending on your income.
Here are some steps to take to create a modified budget:
Calculate Your New Income
COVID-19 has changed everyone’s income, mostly for the worse. Millions of people have experienced a reduction in income, while others no longer have any income at all. A small percentage of people are receiving more pay as frontline workers during this pandemic.
Let’s focus on those of you who have seen a reduction or elimination of income. For those people, creating a new budget is extremely important to sustain cash flow. Start by writing down your new income amount. Don’t add unemployment payments or any other type of financial assistance to the new budget just yet.
Next, look at your savings and any existing emergency fund to see if you may be able to tap some of that money to fill the income void. Don’t jump into your retirement accounts as you will need these for the long term. Before touching any of the money you have set aside, see if you can find a new, temporary income source.
Take A Hard Look At Expenses
Next, determine what you can cut out of your budget to get spending down to a bare minimum. Cancel any “extras” like streaming services or other entertainment costs, as well as the gym and other non-essential services that you cannot even use right now because those businesses are closed. And, although you want to support your local restaurants, it may be more prudent to restrict yourself from takeout and delivery for the time being.
Finally, look at expenses that have been reduced by your current circumstances, such as gas, personal grooming, travel, and clothing. Get your expenses down to only the necessities: mortgage/rent, vehicle payments, credit cards/loans, student loans, utilities, groceries, and insurance. Even some of these may be eliminated or deferred; more on that below.
Account For Financial Assistance
Next, account for any forms of aid or financial assistance that you may be qualified to receive. First, the federal government has provided some relief in the form of stimulus checks set to arrive for many in April. Further aid involves postponing income tax and estimated payments until at least July. There is also state unemployment for traditional employees, which has now been extended to freelancers.
Your employer (even if that is your own small business) can get payroll assistance from the Paycheck Protection Program to keep you on the books. Other options for you, as a freelancer or small business owner, include an emergency relief grant and numerous small business loans.
Explore the potential to defer payments to your mortgage company or landlord, as well as other creditors. Many organizations have designated sections on their online payment dashboard or provided a phone number to call in case you need help. Be proactive in communicating with creditors as soon as your income source shrinks or disappears.
If these financial assistance options make sense for you and you believe you’re qualified to receive them, work these amounts into your new budget. However, designate how that financial aid will go toward your essential expenses, not funding the “extras.” You also want to ensure that any financial assistance you receive can go the distance should it take more than a month or two to recover.
Build An Emergency Fund
After calculating your new situation (income, expenses, and financial assistance), plan to set aside as much cash as possible. Maximizing your savings will help in the coming months, especially if another situation arises.
John Boitnott has been writing for TV, print, radio and internet companies for 25 years. He’s written for BusinessInsider, Fortune, NBC, Fast Company, Inc., Entrepreneur and Venturebeat, among others.
Feature Illustration: Laura Caseley For The Money Manual