Since Kate Dore of Cashville Skyline wrote her post about surviving on a bare bones budget, I’ve been intrigued by the idea that we need to be better prepared for emergencies…but I hadn’t taken the time to put pen to paper.
And then I had a chat with Joe Saul-Sehy for Stacking Benjamins and he asked about our overhead. I had an idea of where our overhead really stands, based on our 2017 household budget, but it was a total guess…
That’s when I decided that it’s time to figure out exactly what our overhead is because when times are tough, before financial independence and after, the bare bones budget can help us maintain focus in stressful situations we can’t always anticipate.
Get our household budget spreadsheet that we use to track our spending. (You'll also get our 7 steps to financial freedom and monthly updates!)
So I took our 2017 household budget and this…
Our Bare Bones Budget
|BUDGET CATEGORY||ESTIMATE||WHAT'S INCLUDED?|
|Auto Expenses||$900||insurance only|
|Electricity||$1,181||our 100% electric small house|
|Garbage||$220||We pay our garbage bill annually, so we get a discount. Woot!|
|Groceries||$5,400||organic, rice and beans, sardines|
|Insurance & Taxes||$2,100||Since we have no mortgage payment, we don't have escrow. We have to save to pay taxes and insurance.|
|Home Supplies||$1,200||Varies sundries, like soap, toothpaste|
|Medical Needs||$1,100||4 visits to doctors|
|Storage Unit||$0||We'd sell the camper and everything.|
|Personal Care||$0||I'd stop getting haircuts.|
|Pet Care||$1,000||vaccines, vet visits, food, litter|
|Water & Sewer||$636||Our water and sewer bills for the year for our small house are so low!|
|Discretionary||$0||no fun money|
2017 Household Budget: $25,671 ($2,139.25 / month)
Bare Bones Budget: $11,656 ($971/month)
When We Might Need a Bare Bones Budget
First and foremost, our bare bones budget is for emergency situations.
If our income declines because of job loss or a revenue decline in our business prior to financial independence, we can fall back on our bare bones budget because this budget outlines exactly what we will spend money on and nothing more.
Second, our bare bones budget is for managing inconsistent income, especially after financial independence. We’re trying to pinpoint exactly how we’ll finance financial independence, but
real estate investments dividend investing will be a key component; a higher-than-expected vacancy rate could cause inconsistent income. Enter the Bare Bones Budget.
What’s Included in the Bare Bones Budget
Auto: We will stop driving the car as much as possible in favor of biking, which we should be doing more of anyway. The small house is centrally located. Within two miles, we have access to a post office, bank, and a grocery store. This $900 is for car insurance, one oil change, and one tank of gas. (One tank of gas would get us to the midwest where we could ride out an alien invasion.)
Electricity: This has been remarkably consistent year over year. Heat in the winter is at 65F. Air conditioning in the summer is at 75F. This $1,181 is likely to stay the same.
Garbage: This stays the same. Illegal dumping is…illegal and wrong. Sharing a can with a neighbor is an option, but the neighbors are transient. This $220 is likely to stay the same.
Groceries: This is our biggest opportunity. We’d return to a diet of rice and beans to cut expenses, opting for vegetarian options as much as possible. If we switched to conventional foods, we’d save even more.
Insurance & Taxes: No change
Home Supplies: Formerly the junk drawer of our budget, we’ve been challenging the spending in this category. We can manage on $1,200 a year (and that might be more than we really need).
Medical Needs: No change
Storage Unit: We’d sell the teardrop camper or try to park it in our backyard. (Could be useful when we need a place to stay in that alien invasion scenario.)
Personal Care: I cut Garrett’s hair. I’d forego a haircut. And I purchased way too much shampoo earlier this year, so I think we have enough for at least a year.
Pet Care: We’d put off the dental care if we had to, but that irks me. These are our fur babies…
Water & Sewer: No change
Discretionary, Gym Membership & Travel: Eliminated
What the Bare Bones Budget Taught Me
- We’ll live. The Bare Bones Budget (BBB) comes out at $11,656 annually and $224 weekly, which affords us the opportunity to stay in our small house, keep our car, keep our pets, and eat a diet not so dissimilar to today.
- One of us would have to work about 31 hours each week at the minimum wage or both of us would have to work 15 to 16 hours at minimum wage. In the face of an emergency like long-term or short-term disability, it’s important that we have the ability to live on one income.
- More categories of our budget are discretionary than I imagined.
- We’ll have to seek healthcare that’s not employer subsidized, assuming the emergency is a job loss, so we’d join the millions in the ACA marketplace. No idea what this will cost, but with our low income, a subsidy would be available (for now).
- The only way this is possible if we stay where we are. But that’s OK. The BBB goes into effect in emergencies, so I doubt we’d be all that concerned with travel or any other discretionary item we’re dropping.
- This is only possible because we’re debt free. If we had debt, negotiating lower payments would be at the top of the list in order to maintain good credit while we work through the emergency. (I feel so grateful to be debt free right now.)
- I think we might have some expenses to cut in our current budget, like the storage unit. (I know, I know. We have things we think we know we’ll need next year, so are we really chumps for having a storage unit? Tell me the truth, Mrs. Groovy!)
- With respect to our emergency fund, maybe we don’t need to save as much as we thought…
- Overall, the Bare Bones Budget is comforting to the fragment of the scarcity mindset that persists.
Tips for Creating Your Own Bare Bones Budget
1. Start by looking at your household budget
When you already have a budget for your money, it goes a long way in creating a bare bones budget. Print your budget or open your household budget spreadsheet and color code those expenses that are necessary, like food, housing, insurance, and utilities. Anything that isn’t highlighted might be something you could cut in the future if you had to.
2. Challenge your expenses today
It’s so easy to get comfortable when bills are deducted from your checking account or charged to a credit card, am I right?!
Rather than wait for an emergency to cut expenses, set a calendar reminder to challenge those recurring expenses, like cable bills and auto insurance. Anything you can cut today could save you a little hassle in the future.
3. Monitor expenses monthly, but also yearly
Use an online tool like Mint or a budget spreadsheet, track your expenses monthly and yearly to monitor the potential for lifestyle creep, i.e. expenses creep up a little over time. You might not notice a little creep from month to month, but you will from year to year.