How to create a crisis budget.

The first step is to take a deep breath and remember you have options.

First, lower your expenses

Step 1: Assess your situation

Before you can create a crisis budget, you need to understand where you stand financially. Start by gathering information on:

• Income: Identify all sources of income, including wages, unemployment benefits, rental income, or side hustles.
• Expenses: List all your monthly expenses, such as rent/mortgage, utilities, groceries, insurance, transportation, and debt payments.
• Savings: Determine how much you have in emergency funds, savings accounts, or other liquid assets.

Step 2: Prioritize essential expenses

It’s crucial to focus on necessities. Prioritize expenses that are essential to your survival and well-being, such as:

1. Housing: Rent or mortgage payments.
2. Utilities: Electricity, water, and heating, low-cost internet and phone service.
3. Food: Groceries and basic household supplies.
4. Transportation: Gas, public transit, or vehicle maintenance necessary for work or essential activities.
5. Healthcare: Insurance premiums, medications, and necessary medical treatments.

Step 3: Eliminate or reduce non-essential spending

After identifying your essential expenses, review non-essential spending. This includes:

• Dining out or carryout meals
• Entertainment subscriptions (streaming services, rentals, etc.)
• Gym memberships or recreational activities

Shopping for wants not needs (clothing, gadgets, expensive phones, etc.) Look for areas where you can cut back or pause spending. Small adjustments can add up to significant savings over time.

Step 4: Communicate with creditors

If you’re struggling to keep up with debt payments, reach out to your creditors. Many lenders offer hardship programs or payment plans during financial emergencies. Proactive communication can prevent defaults and protect your credit score.

You can ask for lower rates or even look into refinancing. Some programs include:

• Temporarily reducing monthly payments
• Deferring payments without additional penalties (think late fees, credit score impacts, and added interest - more on this below) or requesting a forbearance.
• Waiving late fees or lowering interest rates

As an example, if you have a loan with Everwise and are unable to make a full monthly payment, you can still make a partial payment or use Everwise’s Skip-A-Pay program. You may be able to skip an upcoming payment (for a $25 fee) to give yourself some breathing room.

What is deferment and forbearance?

With a deferment, you'll be able to pause your payments for a set amount of time without racking up late fees, hurting your credit score, or adding additional interest beyond what’s included in the original loan amount. This applies to certain types of loans (like federal student loans). You’ll want to reach out directly to your lenders to see if this is an option for you.

Forbearance allows you to reduce or pause payments for a short time, but interest will continue to accrue. This option is more of a short-term fix when faced with financial hardship.

Always speak with your lender to understand what options might be available to you. Make sure that you fully understand the terms and conditions that come with these options and be prepared when payments resume once the pause is over.

Then, maximize debt payments

Now that you’ve lowered your expenses, readjust your budget to start paying off debt and if possible, build a modest bit of savings.

Step 1: Choose your strategy

With multiple debts, there are two common methods for reducing payments over time. In the snowball method you pay down the highest interest debt first as this will save you more money over time. With the avalanche method you start with the smallest balance debts for quick and easy wins that keep you motivated.

If you would prefer to consolidate all your debt into one easy payment, consider a debt consolidation loan with Everwise or your financial institution.

Step 2: Focus on building a cushion

Even in a crisis, try to save a small portion of your income for emergencies. Having even a modest cushion can provide a safety net for unexpected expenses. Redirect any windfalls, such as tax refunds or gifts, toward your savings.

Look for programs where you bank. Everwise offers Round-Up Savings that can help you save without even thinking about it. When you make a purchase with your Everwise Debit Mastercard^®, the purchase amount is rounded up to the nearest dollar amount and the difference is moved from your checking account to your savings account. Those small amounts can add up to big bucks.

Step 3: Track and adjust your budget regularly

A crisis budget requires ongoing monitoring. Track your spending daily or weekly to ensure you stay on track. Adjust your budget as circumstances change, such as receiving new income or encountering unexpected expenses.

Step 4: Plan for recovery

Once your financial situation stabilizes, transition from a crisis budget to a sustainable long-term budget. Prioritize rebuilding your emergency fund and addressing any deferred payments or accumulated debt. Use the lessons learned during the crisis to strengthen your financial habits or seek free financial education or counseling.

Tips for staying motivated

• Set short-term goals: Break your financial recovery into manageable steps.
• Celebrate small wins: Acknowledge progress, such as paying off a bill or reaching a savings milestone.
• Seek support: Share your challenges with trusted friends and family or consult a financial advisor for guidance.

Creating a crisis budget is not just about surviving tough times; it’s about building resilience and gaining control over your finances. By following these steps, you can weather the storm and emerge stronger on the other side.