How to Start a Budget When Your Financial Situation Gets Turned Upside Down

Woman doing her finances at the kitchen table, start a budget concept

Unexpected financial twists and turns can hit anyone at any time. One day, your budget is working great. The next, you've lost your job, or you've experienced an injury, or you've been hit with an unexpected repair bill. If your finances have been in great shape for a while and you can afford it, little disasters may just be a blip on the radar. Sometimes, however, you need to rebuild your budget from the ground up. Try some of these tips to help start a budget after a financial disaster.

Look at your real, set in stone expenses each month

These are the bills that are unlikely to change and that you can't avoid--at least without a lot of rearranging. When you start a budget, take into consideration:

  • Gas to get to and from work and other necessary locations
  • Rent or your mortgage
  • Utility expenses
  • Any ongoing bills you can't cancel right now
  • Loan repayments, including credit cards and vehicle loans
  • Insurance

Make sure you know exactly what those bills are going to cost. For the sake of your emergency budget, estimate on the high end of a bill with a range; you can always change the estimate later.

Consider your variable, but necessary, expenses

Some expenses each month, you know you're going to have to pay for. That doesn't mean, however, that you're stuck with a high bill that you can't whittle back down. By taking a look at some of the expenses that vary every month, you can effectively start a budget. For example:

Take a hard look at your food expenses. If you're eating out regularly, your grocery budget may actually need to increase a little to support an emergency budget. On the other hand, you may be able to adjust your grocery budget more than you think. Make sure you:

  • Meal plan. Food you throw out isn't just wasted food, it's also wasted money
  • Avoid expensive luxury foods when possible. Expensive cheeses or overpriced wines can wait until you get out of this current emergency
  • Check out store brands
  • Buy in bulk to last you for a while, if possible

Consider your gas costs. Sure, gas to and from work isn't an option, nor is the gas you use to pick the kids up at school. By reducing unnecessary travel, however, you may be able to cut your gas expenses considerably.

Track any other variable expenses in your budget. These may depend heavily on your profession and your specific needs.

Track your luxury spending when you start a budget

Many people genuinely don't realize how much they spend on luxuries. The common example is a $5 cup of coffee at your local coffee shop every morning, but luxury spending can represent a lot more than that. It could be those impulse purchases every time you go to your local superstore or the regular cost of entertainment. Go over your bank records for the past several months and genuinely track your luxury spending, then look for ways to reduce it. Clearly define what is a luxury in your life, especially with a more limited budget. This might include:

  • Getting your hair and/or nails done
  • Eating out
  • The cost of a personal trainer or expensive gym membership, especially if you've seen out your contract
  • The cost of regular subscriptions, including streaming services
  • Travel
  • Expensive hobbies

Once you have an idea of what you're currently spending on luxuries, start looking at ways you can cut costs. Leave yourself a little room for "play money" in the budget, but don't insist that those luxury items in your life are necessities, either. Look at this as a fresh start: a chance to reevaluate your priorities and your spending and make sure that they match up. Often, when life throws a financial curve ball your way, you'll find that those little luxuries that meant so much actually have less meaning in your life than you thought. Try to cut some of these luxury items out when you start a budget!

Prepare for future disasters

Even when you're in the middle of a financial disaster, keep setting money aside in savings, if you can. If you can't, prepare yourself more effectively for future emergency measures, including what you'll do with your money as your income improves. A savings account can be the difference between an inconvenience and a financial disaster--so make sure you've prepared yourself accordingly.

A second look at your budget after a financial disaster can help prepare you for future financial success. By re-evaluating your budget and starting from scratch, you can often find new ways to handle your money that can decrease your financial burdens and set you up for success in the future.