There are things we can see coming long before they arrive: graduations, anniversaries and retirement. Others hit us unexpectedly, and the financial results can be devastating. While you can't anticipate everything - sickness, catastrophe, fraud, job loss - you can build an emergency plan, quickly, that will help carry you through should you face such a crisis.

Get a Handle on Where Your Money Is Going
If you don't already have a budget and a definite figure on how much you're paying out monthly in bills and regular expenses, this is the absolute first step. You can do this the old-fashioned way, by reviewing your bank statements (online or on paper) and categorizing each payment that occurs over a month's time. Or you can use a financial software program, connect it with your bank account, and let it do all the data sorting and number crunching for you.

Either way, you should end up with two clear figures: the amount of money coming in every month and the amount of money going out every month.

Separate the Negotiables from the Non-negotiables
Get an idea of your bare minimum: that is, exactly how much money you would need per month in order to survive with only the necessities. Review your expenses and decide what expenses you could cut if absolutely necessary.

For example, negotiable items (items you could live without) might include:

  • Cable and Internet service
  • Expensive cell phone plans
  • Gym membership
  • Shopping and eating out

Non-negotiables, on the other hand, might include:

  • Utilities (water and electricity)
  • Groceries (though there are ways to cut these costs, too)
  • Debt payment
  • Mortgage
  • Insurance

Make it Your Immediate Goal to Save The Bare Minimum
Having enough money in the bank to last even one month can provide huge relief. If you are already saving money, do everything you can to save more: go lean for a month or two and save up until you've accumulated a month's bare minimum in an emergency fund. Then continue to save, even if at a lower rate, and add to that emergency fund every single month.

Brett Arends of the Wall Street Journal recommends strategies such as cutting weekly expenses to bimonthly, riding a bike instead of driving, refinancing your home and teaming up with friends and neighbors to make bulk purchases for better prices.

Form an Emergency Strategy
An emergency strategy is key. If you experience a job loss or other financially draining crisis, you'll know what to do. Waiting until the crisis happens will leave you making key decisions while in a panicked mode, which is never a good idea.

First, have a list of those negotiable items that you determined. Add all the information you would need to remove those negotiable items: account numbers, contact information, company names, contract details (is there a cancellation fee?) and so on. You want to be able to sit down and quickly run through that list, canceling each item with minimum fuss.

Second, make a list of all the debts you owe. This list should include credit card debt, student loans, home mortgage or equity loans, medical debt and any other outstanding debts you have. As you did with the list of negotiable items, gather your information. Should a crisis arise, you will call each creditor and negotiate for a lower payment. According to Oregon State University Extension, creditors may be willing to negotiate by giving you a lower monthly payment, a lower interest rate or even deferring your payment for an amount of time. If you know you'll owe taxes, you should also include the IRS on this list because they will often work with you if you cannot afford to pay the full amount of taxes owed.

Third, make a list of your assets and resources. Your assets include anything of value that you own. For a car or home you still owe a partial amount on, just subtract the amount you owe from the total value to get the worth of that particular asset.

Don't overlook smaller assets as well: jewelry, electronics, furniture you don't need, clothes you don't wear. List your financial assets (stocks, bonds, ownership of a business). The final asset is the collection of skills contained within your immediate family. Your professional skills can often be freelanced for immediate income, your hobbies can become lucrative and the other members of your family can pitch in.

Your resources include those individuals and organizations in your network to whom you can turn for help. Perhaps your brother-in-law is a lawyer who could help negotiate with creditors or perhaps a friend who owns a business could send some temporary work your way.

The Bottom Line
Nobody wants to live in crisis mode, and it's not fun to think about cutting out the luxuries of life or selling the things that are dear to you. If crisis does hit, you'll be glad you took the time to go through these steps. Fireproofing your budget can be a means of survival, and it can help bring you out of a crisis without long-term financial repercussions.

Related Articles
  1. Credit & Loans

    Explaining Equated Monthly Installments

    An equated monthly installment is a fixed payment a borrower makes to a lender on the same date of each month.
  2. Professionals

    10 Must Watch Documentaries For Finance Professionals

    Find out about some of the best documentaries that finance professionals can watch to gain a better understanding of their industry.
  3. Budgeting

    6 Cost-Effective Tips for Raising Your First Child

    The excitement of welcoming your first child to your family shouldn't prevent you from making good cost-effective decisions.
  4. Budgeting

    5 Ways to Date on a Budget

    Dating on a budget doesn't have to be boring. Try these 5 tips to find the best dates on a budget.
  5. Budgeting

    7 Kids Items You Should Never Buy Used

    Buying secondhand items is a great way to save money, but these seven kids items should not be bought used.
  6. Investing

    10 New Apps That Help Budget For Expensive Cities

    From platforms for saving money to those that account for side jobs, mobile apps are changing spending habits and income generation in urban areas.
  7. Budgeting

    How Cooking At Home Can Save You Real Dough

    Cooking at home saves time and money but most importantly, it could even help lower future health costs.
  8. Personal Finance

    Money Matters on Campus: Attitudes & Aptitudes

    Financial trends among college students are a cause for concern, prompting a renewed emphasis on financial instruction.
  9. Home & Auto

    Why Housing Costs Shouldn't Exceed 30% of Your Budget

    Financial experts will argue that there’s no problem with allocating 50% of your net income to housing, but that barely leaves enough money for living comfortably. Reducing housing expenses to ...
  10. Investing Basics

    Tiny House Movement: Making Market Opportunities

    The tiny house movement throws all assumptions about household budgeting and mortgage management out the window, and creates new market segments too.
  1. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  2. What is the range of deductibles offered with various health insurance plans?

    A wide range of possible deductibles are available with health insurance plans, starting as low as a few hundred dollars ... Read Full Answer >>
  3. How do I know how much of my income should be discretionary?

    While there is no hard rule for how much of a person's income should be discretionary, Inc. magazine points out that it would ... Read Full Answer >>
  4. Do negative externalities affect financial markets?

    In economics, a negative externality happens when a decision maker does not pay all the costs for his actions. Economists ... Read Full Answer >>
  5. What is the difference between disposable and discretionary income?

    According to the Bureau of Economic Analysis, or BEA, disposable income is the amount of money an individual takes home after ... Read Full Answer >>
  6. What proportion of my income should I put into my demand deposit account?

    Generally speaking, aim to keep between two months and six months worth of your fixed expenses in your demand deposit accounts. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!