Plan Now For Tough Times: How To Create A Survival Budget

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Plan your survival budget in good times

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

(First published in August 2017)

Life has its ups and downs. 

Up: 15 years ago, we bought our first home.

Down: a few months later, the financial crisis hit, and I found myself pregnant and out of work. 

The big question 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 and builds financial resilience

For us, and our experience, an effective financial backup plan included these four elements:

  1. debt elimination
  2. an emergency fund
  3. a survival budget; and
  4. practice

Below I’ll share some of the things we learned when going into crisis mode, and how we use that to maintain a survival budget now incase we have to go into crisis mode again.

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

Step 1: Eliminate Consumer Debt

The last thing you want, when times are tough, are creditors knocking down your door. You want to look forward to the future, not deal with past spending.

The future is more secure, and it’s easier to get by when you don’t have to make debt repayments on a survival budget.

We had to learn this the hard way. It’s tough. Payments that might be affordable now won’t be if poop hits the fan.

Once bitten, twice shy.

Eliminating consumer debt and keeping debt levels low in the good times helps you be in good stead 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 your hot bath and warm milk at night; it helps you sleep soundly.

For us, we found that paying ourselves first and automating those payments are the best way to grow an emergency fund. We don’t miss the money we don’t see, and even a few dollars every pay adds up over time and makes emergency situations a little easier.

I talk more about how we built an emergency fund if you want to check it out.

Step 3: Create a Survival Budget

We have two budgets: our regular budget and our survival budget.

Our survival budget is a list of the bare minimum expenses we need to pay to get by and how much income is needed to cover them each month.

Our survival budget gives us a target for our emergency fund. We can work out how much we need to save to cover three-six months of minimum expenses.

It also helps us work out if we can survive on one income, not two. It might not be ideal, but it gives peace of mind that we can continue on with only one income if we have to.

Here are the steps I took to create an emergency budget.

Assess our current budget

We already have a budget, which makes it easier. According to stats, most people don’t have a budget, but honestly, I couldn’t function without one. Knowing where your money goes is the first step to controlling that flow.

When you have a regular budget, making a survival budget is just a matter of cut, cut, cutting away the fat.

Further reading:

Readjust Our Income

The next step is to work out our survival income. The questions I ask include:

  • Is one of us still earning income?
  • Do we have leave entitlements to be paid out? How long can you stretch these?
  • Would we be given a redundancy package?
  • How many weeks can I make my current emergency fund last?
  • Are we eligible for unemployment benefits? What amounts and what is the wait time?

I actually have a couple of survival budgets that I calculate for different scenarios. Real life always works out differently to what we plan, but having these calculated gives me peace of mind now.

Eliminate Discretionary Spending

It’s time to get ruthless and slash all unnecessary expenses.

These expenses are wants as opposed to needs. Needs include food and shelter. Everything else can be cut temporarily.

And it’s amazing what ‘essential’ expenses can be eliminated when there’s just no money to pay them.

When I looked at our budget back when I was first out of work, I thought we couldn’t cut much at all. A few weeks later and we were living on a fraction of what we had been.

While cutting back on everything sucks, it’s meant to be a temporary measure while we get back on our feet.

Negotiating Fixed Expenses

Fixed expenses aren’t always as fixed as we think – it’s possible to reduce fixed expenses like insurance or utilities by shopping around. My friend even managed to negotiate her rent, even in this post-Covid environment!

Read further: How to Switch and Save

The first time we had to use our survival budget, we couldn’t negotiate our new and fixed mortgage (at 8.49%!), but we could shop around for cheaper utilities.

If we had debts, I would have contacted creditors to discuss repayment options. If you have debts, then it’s a good idea to contact your creditors and discuss repayment options while you get back on your feet. The free National Debt Helpline is a great resource for help.

You may be able to negotiate a reduced repayment schedule or repayment holiday on your mortgage.

Adjusting Flexible Expenses

There’s a thing called hedonic adaptation – it’s where you get used to the lifestyle you’re living.

At the beginning, cutting expenses suck. But over time, you adapt and get used to it.

Flexible expenses are discretionary expenses and expenses where you can have some control over costs. Going out for dinner is a discretionary expense that can be cut. A flexible expense is electricity, where you can take steps to reduce usage.

When I create a survival budget, I think about the bare minimum I need to get by. I try to budget for just enough petrol to drive to essential places, just enough grocery money for basic groceries.

In the case of utility bills, the spending we do today doesn’t have to be paid until later, so later me is thankful if today me turns the light out or only puts the air con on if it’s super hot. Those actions don’t feel like spending money, but they make life easier for future me who has to pay the bills.

Read further: Reducing grocery expenses


Living on our survival budget when we don’t have to, even if it’s just for a few weeks or a month, has several benefits.

First, practising empowers us. Rather than worrying about the worst, we are empowered by knowing whether we can cope. And if we do struggle, it can be the motivation we need to take steps to make it easier.

Practising for just a little while will also give us some extra money now to pay off current debts and build an emergency fund.

Read further: Challenge Yourself with a No-Spend Month

Creating a survival budget now while times are good reduces some of the stress when times are bad. A survival budget gives you the confidence you can cope and get back on your feet. 

a budget for tough times

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  1. I love this! I recently lost my job and we had to adjust to our new income as well. Luckily we don’t have any debt and I still get a bit of government money so we can adjust to a single income in steps. But it’s so true to prepare yourself for it!

    1. Melissa Goodwin says:

      Hi Stephanie,

      Sorry to hear about your job, but glad to hear you’re getting by! Thanks for your comment. :)

  2. Thankyou these are very helpful tips!!

    1. Melissa Goodwin says:

      Hi, No worries, glad to hear! :)

  3. Hi Melissa
    This is a good prompt for me as I am close to retirement to review my budget with a lower income in the future.

    1. Melissa Goodwin says:

      Hi Bernie,

      Glad to hear it was helpful for you. All the best for retirement!

  4. Hi Melissa,
    This is a wonderful blog!
    Thank you for your great articles.
    I really like the article you wrote in 2015 about food to thrive on. I hope to read Luise Light book.
    many thanks

  5. Melissa, happy I found your blog today. I love reading about frugality and simplicity. I was blessed with an aversion to shopping :D so it comes quite naturally to me! But I have lots of room for improvement.

    1. Melissa Goodwin says:

      Hi Jean,

      It’s nice to meet you :).

  6. For some time now I have gradually been adjusting to spending less and for the past couple of years have been been living on what will be my pension amount, and saving the rest. When I retire I will be used to the limited income and will have savings for emergencies. How I wish I had learned this year’s ago.

    1. Melissa Goodwin says:

      That’s a smart idea!! Gradually adjusting would make the change easier. Thank you for sharing. :)