Our Bare Minimum

Our comfortable level of frugalness is frequently the subject of dinner conversations at our table. It usually starts with me bringing up a new idea or money saving method for us to try at home and my husband and I discussing whether that it is something we need to do. However, there come times when you need to strip your expenses to the bare minimum whether you are comfortable with that or not.

This morning I read Jeff Opdyke’s latest column about his need to revisit his budget due to an upcoming loss in income. It got me thinking, what would we do if my husband (God forbid) lost his job and we had to live off our emergency fund. What are our bare expenses and how long will the emergency fund last us?

Right now, we save more than 20% of my husband’s income. That would have to stop for a while. We would also have to reevaluate our monthly bills. Our cell phone plan would be one of the things that would go first, cut back from $60 to $20 for a prepaid phone. Cable sadly would have to go. Our cable includes phone and internet and our monthly bill is usually around $200 because of international calls. We will need internet for his job search so we could bring this one down to $110. Gas, electric and car insurance bills would remain the same because I really think our demand of those services is inelastic and we need the same level of coverage on our insurance. In average those three bills total $350. For the last three months we have spent $400 in HBA and food (including eating out). Let’s assume that stays the same. Our gas expense would go down since my husband wouldn’t be driving to work. Mortgage bill stays the same for the first six months.

All of this trims our monthly expenses by 27% and extends our emergency fund from six months of expenses worth to eight. That’s not very much is it? This exercise just made me realize that the bulk of our expenses is very inflexible (mortgage, insurance, basic utilities), which underlines the need for a sizable emergency fund. I understand even more how easy it is to fall in hard times when you are not adequately prepared for it.

In times of financial hardship it is necessary to cut back on your expenses to the minimum. However, as my exercise has shown, cutting back on some of our basic expenses is not possible in the short term. What happens when these basic expenses represent the majority of our household costs? We can dig ourselves in the hole pretty quickly even with a nice emergency fund when a financial hardship lasts longer than expected. It seems it is true we can never be fully prepared.

How long will your emergency fund last you if you had to live off it?

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Comments

  • Kacie

    I’ve thought about this occasionally as well. Our cable would go, but the phone would stay because to cancel my plan, I’d have to pay a hefty charge to do so. It would probably be cheaper to just keep it, and maybe lower my minutes (though I have the smallest plan now).

    Have you looked into something like Skype for your international calls? I don’t know much about it, but you might be able to make free international calls. Check it out–might save you some money!

    I think a 6-8 month emergency fund is plenty for someone in a ‘regular’ job (as in, not a commission-based job).

  • Mercedes

    Kacie,
    I actually have been thinking about this a lot with the state of the economy and us being a one income household. Who knows what’s enough nowadays,
    Mercedes

  • Anonymous

    Funny you should post about this since my husband and I were just talking about it last night. I have lots of little things I would do to cut out small dollars here & there-unplug the ice maker, and any electrical stuff not in regular use-ex vcr, tv's. Get rid of cable and extra's on the landline (we don't have a cell). Make better use of the electric we do use, by using lamps instead of our overhead lights (we have high ceilings and lots of lights). If the loss of income would be long term-like more than 6 mos-we would more than likely look into reamortizing our mortgage. We pay extra on it, and have already taken years off the end. By reamortizing we wouldn't pay it off early, but our monthly payments would be lower, thus making our emergency fund go further.

  • Jennifer

    Mercedes, I think it is wise for everyone to think along these lines from time to time. You have to have a plan in order to succeed when something unexpected comes along. I have seen too many people refuse to make any changes, assuming there will be a new and better job in a week’s time. 6 months later they are just beginning to make cuts. It is sad.

    For us we could make it 2 months.

  • Anonymous

    I wonder what HBA stand for? Health, Beauty and Accessories? Health is essential, but Beauty and Accessories…that can definitely be cut out.