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Budgeting is crucial for gaining control over your life. Understanding your spending habits allows you to navigate your finances toward long-term objectives. However, most budgeting strategies concentrate solely on the present, aligning with your current earnings and lifestyle. This approach works—until your income or lifestyle undergoes a significant shift. What if you unexpectedly lose your job? If your budget relies on last-minute bill payments and living paycheck-to-paycheck, a sudden income drop can lead to chaos. That’s why a “minimally viable” budget is essential—and it’s something you should prepare before it becomes necessary.
Understanding the Concept of a 'Minimally Viable' Budget
The phrase “minimally viable” describes the simplest, most basic form of something. A minimally viable budget (MVB) represents the bare-bones financial plan you can survive on. It’s a no-nonsense, worst-case scenario budget that calculates the minimum monthly amount needed to keep you and your family sheltered, fed, and healthy during a severe income disruption. It goes beyond just setting up an emergency fund—it’s a strategy for utilizing that fund and determining how long it can sustain you.
An MVB is essential as it prevents panic and poor decision-making during crises. Life is unpredictable—job loss or unexpected circumstances can arise at any time. By preparing an MVB in advance, you’ll have a clear strategy for what to retain, reduce, or eliminate if financial hardships occur. This pre-planned approach saves time, reduces stress, and ensures smarter choices during turbulent times.
Preparing for the worst-case scenario
Creating your MVB is a simple process:
Step 1: Identify what to keep, reduce, or eliminate. Begin by calculating the minimum monthly amount required to cover essential needs:
Keep. Document your fixed monthly expenses, such as rent or mortgage payments, which remain constant and are often non-negotiable. Also, account for potential new fixed costs—like purchasing health insurance if you lose employer coverage—and determine how much it would cost you.
Cut. List expenses that can’t be entirely removed but can be reduced, and estimate the potential savings. For instance, you might trim your grocery expenses by 25% or lower utility bills by adjusting your thermostat.
Consider negotiating with lenders to adjust or pause debt payments, which could temporarily move them from the “keep” to the “cut” category. It may be helpful to create two MVB versions—one assuming reduced or paused debts and another without such adjustments.
Cancel. Identify non-essential expenses to eliminate. Be ruthless—the focus of a “minimally viable budget” is on the bare essentials. This means cutting out all unnecessary costs like streaming services, gym memberships, and subscriptions. Evaluate every monthly expense and decide if it’s truly indispensable. If not, add it to your “cancel” list, even if it’s a tough choice.
After determining what to keep, reduce, and eliminate during a financial crisis, tally up the totals. This will give you the minimum monthly amount required to survive. While it’s an estimate, it provides a practical figure to guide your planning.
Step 2: Establish a savings target.
With your monthly survival amount calculated, focus on the worst-case scenario: zero income. Your next task is ensuring your emergency fund can sustain you for a significant period. Since job searches typically take three to six months, aim to cover your MVB for at least three months.
For example, if your monthly expenses average $3,693 but can be reduced to $2,500 through adjustments, your emergency fund should target $7,500 for three months or $15,000 for six months. This provides a buffer. Calculating your MVB also clarifies your timeline if income is lost—if you’re laid off with $4,000 in savings, you’ll know you have roughly a month and a half before facing financial strain. While this isn’t ideal, understanding your situation allows for immediate and informed action.
Step 3: Additional income sources
Once you’ve determined your essential expenses and established a savings strategy to buy time, consider ways to improve your financial situation. While this isn’t part of the official MVB—which focuses on a worst-case scenario with no income—having a plan means knowing your options. This includes identifying potential income sources to soften the blow of financial hardship, such as:
Side gigs you can start or rely on to generate additional income. Though not part of the MVB, having these plans ready allows you to quickly boost your earnings and adjust your MVB accordingly if unexpected income arises.
Severance benefits or other mitigating factors. If laid off, your employer might provide a package covering health insurance or a lump-sum payment, which could significantly impact your MVB calculations.
Unemployment benefits. Familiarize yourself with the application process and estimate potential benefits. However, remember that processing delays may require relying on a reduced MVB temporarily.
