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Guerrilla Budgeting 101

If you’ve recently lost your job in this down economy, you may be trying to decide how to budget expenses based on a suddenly and drastically reduced income. Gurf Morlix’s song provides insight and guidance. It’s a lesson I what I call Guerilla Budgeting.

First, determine your monthly income for the foreseeable future (3-6 months). Take into account the following:

 

·         Any severance payment you received from your employer. Divide the lump sum severance by the number of months you are budgeting for. For example, if you received a $1,200 severance (after taxes) and you are budgeting for three months, you have $400 of monthly income.

 

·         Unemployment benefits to which you are entitled. Information for applying for unemployment can be found at the North Carolina Employment Security Commission’s website at https://www.ncesc1.com/individual/webInitialClaims/applyBegin.asp.

 

·         Interest, dividends, royalties, or rent, if you are lucky enough to have savings, own stock and bonds, receive royalties from your creative efforts, or rent from tenants of property you own.

 

Second, add up your monthly expenses—all of them. Don’t leave anything to begin with—we’ll get down to the necessities in a moment. Use Gurf’s song to guide you. Take into account:

 

·         Food expenses—Use the average of your last six months food expenses. Take into account both grocery and restaurant expenses.

 

·         Housing expenses—Take into account your monthly mortgage payment or rent you pay. Also, take into account the monthly minimal interest required for your home equity loan, if any. This should be considered, because this loan is secured by your home. Default on this loan, and the bank can reduce or eliminate the line of credit or even foreclose on your home. Also consider, maintenance expense that must be incurred, because the expense can’t be put off. For example, if your water heater is out, or your toilet won’t flush, and you can’t do the repairs yourself, you’ll need to call a plumber. Average the estimated cost across your budget period.

 

·         Utilities—Again, average all of your utilities including water, gas, electric, phone, and wireless expenses over the last few months. Assume for now that it’s all necessary. You can cut later, if you need to.

 

·         Childcare—This is the love part. Just because you aren’t working at your old job doesn’t mean you won’t have childcare expenses. Your new job is to find work in a tough employment environment. If you paid to have your children cared for in the past, while you were working, assume those expenses will continue, because you’re going to be busier than ever.

 

·         Insurance—This is more of the love. Through your employer you may have had a variety of group insurance benefits including life, disability, and health. Chances are, your employer subsidized your insurance benefits or received a group discount for them. You were getting a good deal. Unfortunately, any insurance you may have had in the past is unlikely to continue beyond termination of your employment.n budgeting for insurance, don’t worry about disability income. Chances are, if you’re not working you won’t be able to get private disability income insurance, even if you can afford it. Your eligibility for life insurance may also be limited due to your currently reduced income and if you qualify, your life insurance will probably cost more than it did through your employer. Under a federal law, COBRA you have continuing health insurance benefits, but you have to pay the entire cost unless you qualify for a government break. To learn more about COBRA health insurance see http://www.dol.gov/ebsa/faqs/faq_consumer_cobra.HTML Add the COBRA premium into your budget at this point. Trust me, you can’t afford to be without it.

 

·         Debt Service—This is is love, too, although it might not appear so at first blush. This includes the minimum payments you owe on credit card and revolving lines of credit (for example, Kohl’s). Assume for the moment you have to pay at least the minimum amounts, because unless you do, your credit score will tank and your family will suffer.

 

·         Gas/Transportation—Look at his for the last six months and cut it by two thirds. You won’t be commuting daily. You will drive only for necessities, like job interview, grocery shopping, and picking up your kids from daycare.

 

·         Clothing, entertainment, miscellaneous expenses—You are out of work. You cannot afford these. Wear what you have, stay home, cut out the latte at Starbucks. If you belong to a social club or YMCA, bail out. Walk outside in the mornings and do push-ups and sit-ups inside.

 

·         Taxes—If you expect taxes to be payable during your budgeting period, average those taxes over your budget period. You cannot mess with the IRS. They will freeze your bank accounts, seize your home, and put you in jail.