How I Create a Survival Budget for Tough Times

Creating a survival budget when times are good empowers you to take charge in tough times, cope well and get back on your feet.

“Hope for the best. Plan for the worst.”

Life has its ups and downs and we’ve had both. 

And when times were tough, one of the big questions we’ve had hanging over our heads was: could we get by on one low income?

Big changes call for big adjustments. It doesn’t matter if the change was planned, like having a baby or starting a new business, or unplanned, like job loss or illness (or a global pandemic).

Adjusting your lifestyle to a drop in income is HARD. 

But the transition is a tiny bit easier if you’ve planned ahead. Plan B, even if you never have to use it, gives a little peace of mind – especially if you’re a worrier like me – and builds financial resilience. 

What can I say, I’m a control freak, and I like to see – on spreadsheet – different worst-case scenarios and how we’d deal with them. Planning ahead makes me feel like I can handle the chaos.

For us, creating our financial safety net included four main things:

1. Eliminating as much debt as possible
2. Building an emergency fund  
3. Creating a survival budget  
4. Practising living on that budget

Here’s how that plays out for us.

Disclaimer: This is general information only. In this blog, I share my savings and budget planning and what works for us, linking to authority websites where relevant. You should always consult a qualified financial expert when making money decisions to tailor plans to suit your circumstances.

Step 1: Eliminate Consumer Debt

With credit cards and schemes like AfterPay, it’s pretty easy to wrack up consumer debt. And while it’s not always bad, when we do, we’re gambling on the belief that future me will be able to pay it.

But if something happens – one of us loses work, get sick, etc., – that might not always be the case.

The last thing I want, when times are tough and the budget is super-tight, are creditors knocking. When I’m dealing with a current crisis, I don’t want to be dealing with past spending on top of that.

I’ve learned that a survival budget is much easier if I don’t have to cover consumer debt repayments.

Once bitten, twice shy.

Eliminating consumer debt and keeping debt levels low in the good times helps me be in good standing in the bad times.

Step 2: Build an Emergency Fund

An emergency fund is a stash of money specifically put away for job loss and other financial calamities. It’s a hot bath and warm milk on a cold night – in other words, it helps me sleep better.

We found that paying ourselves first (even $2 a pay) and automating those payments are the best way to grow an emergency fund because we don’t miss the money we don’t see.

And while building an emergency fund at $2 a pop is slow, it’s better than nothing. And when the poop hits the proverbial, an emergency fund – even a small one – eliminates or reduces the need to rely on debt to get by.

Step 3: Create a Survival Budget

We have two budgets: our regular budget and a bare-bones survival budget as described below.

The survival budget covers just the essentials like housing, groceries, bills.

It’s our “what’s the absolute minimum we can live on?” number.

It gives us:

• A savings target for the emergency fund  
• A way to test if we could live on one income  
• Peace of mind now that we can cut back if needed

So what goes into a survival budget?

It will be different for everyone, depending on circumstances. For us, it includes:

• Housing (mortgage or rent)  
• Utility bills (electricity, water, phone/internet)  
• Basic groceries (no gourmet treats or extras)
• Petrol and essential transport  
• Medication or medical costs  
• Insurance  
• Minimum debt repayments (if applicable)

That’s about it. No takeaways, no streaming services, no top-up shops for just-in-case items.

Start with the Regular Budget

Having a regular budget already in place made this easier. (I genuinely don’t know how I’d cope without one.)

From there, it was a matter of slicing off anything non-essential. It’s surprising what counts as “essential” when you think you can’t cut anything… until you suddenly have to.

If you’re starting from scratch, these posts might help:

• An Effective Alternative to the Traditional Budget
• Creating a Simple Budget
• Australian Budgeting Apps

Estimate Our Survival Income

Once we had a “bare minimum” expenses number, we needed to work out what income we could rely on in a crisis.

We asked ourselves:

• Is one of us still earning?
• Are there any leave entitlements we could use?
• Would we receive a redundancy payout?
• How long would our emergency fund last?
• Would we qualify for government payments?
• Are there other ways we can earn income (casual job, Uber Eats?)

I have freelance income, like many families do these days, which means my income is irregular. So I start with my lowest-earning month from last year and plan around that when estimating my income.

We’ve made a few versions of our survival budget based on different scenarios. Of course, real life never goes exactly to plan, but it helps me sleep better.

Slash Discretionary Spending

This is the “ruthless” stage. Anything that isn’t food or shelter gets cut, at least temporarily.

When I first lost work, I didn’t think we could cut much. But we adapted. A few weeks later, we were living on a fraction of our previous budget.

It wasn’t fun, but it got us through. And it was never meant to be forever.

It can be stressful and emotional making these changes. I remember feeling a mix of fear, guilt, and frustration. But it helped to remind ourselves: this about getting through, not living like this forever.

Revisit Fixed Expenses

Fixed doesn’t always mean fixed.

At the time, we couldn’t renegotiate our mortgage back in the day (hello 8.49% interest rate!), but we could shop around for cheaper utilities.

These days, you can sometimes even negotiate rent. My friend did just that in 2024 when prices were soaring, although the tighter the market, the harder it is to negotiate.

More here: How to Switch and Save

If we had debts, I’d also call creditors and explain the situation. The National Debt Helpline is a fantastic free service that can guide you through those conversations.

We may even be eligible for a mortgage repayment holiday or reduced payment plan.

Adjusting Flexible Expenses

Hedonic adaptation is real. At first, cutting back feels awful, but you get used to it, even if it sucks.

Flexible expenses are things you can influence, like groceries, petrol, and energy costs. You might not be able to avoid them completely, but you can reduce them with effort.

When I make our survival budget, I work out:

• Just enough petrol to get where we need to go  
• Just enough grocery money for a no-frills shop

Even little actions like turning off lights or running the air con less help future me when the next energy bill rolls in.

More ideas here: Reducing grocery expenses

Example: Normal vs. Survival Budget (Monthly – Sample Numbers Only)

Category	Normal Budget	Survival Budget	Notes
Mortgage/Rent	$2,000	$2,000	Fixed expense, non-negotiable short term.
Utilities (electricity, water, gas, internet)	$400	$250	Shop around, reduce usage, cut extras like premium internet speed.
Groceries	$900	$500	Basic staples only, bulk buying, meal planning.
Transport (fuel, public transport)	$400	$200	Essential trips only, reduce car use.
Insurance (home, health, car)	$450	$350	Negotiate premiums, adjust cover.
Subscriptions (Netflix, Spotify, etc.)	$100	$0	All cancelled.
Dining Out/Takeaway	$250	$0	Eliminated until recovery.
Clothing/Shopping	$200	$0	Postponed, use what we have.
Entertainment/Leisure	$150	$20	Free/low-cost activities only.
Miscellaneous	$200	$50	Emergency-only spending.
Total	$5,050	$3,370	Savings of $1,680/month.

Step 4: Practise

Living on our survival budget – even just for a few weeks – was eye-opening.

It gave us confidence. Rather than worrying about the worst, we knew what we could handle. And when things felt tight, it motivated us to make changes that helped long-term, like building savings.

Practicing also meant we saved a bit more in the moment, which helped pay off debt and boost our emergency fund.

If you want to try it, a no-spend month is a good way to start.

And when things start to ease, that’s a good time to reassess and slowly build your way back up again. Recovery is its own season.

Optional Extra – Upskill and Diversify

While this article focuses cutting expenses and creating an emergency budget, the flip side of the coin is diversifying the way we earn money.

Uber, DoorDash, Airtasker – none of those things existed in 2007 when we found ourselves on a survival budget. Nowadays, it’s quite common to have a side gig.

Instead, all those years ago, I put an ad in the paper to do people’s ironing and earned extra cash to help cover the bills that way.

With cost of living and AI, I’m always looking for different ways to upskill and build reslience.

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Creating a survival budget while times are good makes you prepared in case the tides turn and creates a small buffer against the chaos.

We hope we never need to use ours again. But knowing it’s there helps me sleep better at night.

Have you created a survival budget before? What helped you get through tough times?