Woman balancing her checkbook.

How To Set Up An Emergency Budget

Lauren Nowacki7-minute read
UPDATED: April 14, 2022

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When it comes to preparing for the worst, an emergency fund can be instrumental in protecting your finances in times of uncertainty. An emergency fund is an amount of money saved specifically for unexpected costs. Its purpose is to help prevent you from depleting your savings or going into debt due to unforeseen circumstances. These can be as minor as your car breaking down or as detrimental as falling seriously ill or losing your job. Emergency funds are recommended by most financial experts and are often a hot topic of discussion in the financial industry. But what’s less commonly talked about is an emergency budget, which is another important part of protecting your finances, especially if your hardship is more long-term.

What Is An Emergency Budget?

Unlike your normal daily, weekly or even monthly budget, an emergency budget strips all expenses down to the bare necessities only. That means budgeting for your basic needs and financial responsibilities only to severely curb your spending and help stretch your money further to last longer.

Why You Should Create An Emergency Budget

By taking away all of your unnecessary expenses, an emergency budget can help free up some money and provide some breathing room. Depending on your situation, it could help you put more money into your emergency fund or have more money to go toward paying bills and staying afloat without damaging your credit or finances.

When To Use An Emergency Budget

You can use an emergency budget anytime, but there are certain times you should definitely have one. Two common instances in which you would create an emergency budget are: to help you build an emergency fund and to help you pay for your basic needs during financial hardship. In times of emergency, you should use this budget in conjunction with your emergency fund, if you have one.

How To Create An Emergency Budget

Carve out some time to focus specifically on creating your emergency budget. Pour yourself some coffee, grab a calculator and have your budget sheet and accounts ready for reference. This may take a little bit of time, effort and math on your part. Here’s what to do next.

Review Your Regular Budget

Your regular budget will already tell you how much you are spending. If you don’t have one already, get started by learning how to create a budget. For now, write out all of your monthly expenses, both regular and irregular. You can do this by looking at all of your monthly bills – utilities may have to be rounded – and reviewing your receipts and bank and credit card statements to determine the average amount of money you’re spending on other things like groceries, gas, clothing and entertainment. Add them up to see how much you are currently spending each month.

Separate Expenses 

Once you have all of your expenses listed, separate them into two categories: necessary and unnecessary. Since everyone’s lifestyle is different, it is up to you to determine what those are. Here’s some help in deciding:

Necessary expenses take care of meeting your basic needs. These types of costs are also known as “fixed” expenses because they are the things you absolutely need each month. These expenses include food, shelter, transportation. So, what costs fall under those expenses? For food, that cost is groceries – not dining out. For shelter, costs could include your mortgage or rent payment, average utilities cost, and homeowners insurance. For transportation, you may incur such costs as a car payment, car insurance, gas or public transportation passes.

Other necessary expenses may include a phone, the internet (especially if you’re working from home) and any minimum payments on your debts, so you don’t ruin your credit. You may also have legally required financial obligations like child support and alimony.

Unnecessary expenses are costs for things you can live without if you have to. These typically include subscriptions (cable, streaming services, gym memberships, etc.) and entertainment expenses, like dining out, going to the movies and shopping.

Decide What To Keep, What To Lower And What To Get Rid Of

Keep necessary expenses and cut the unnecessary completely. The next step is taking all of those unnecessary expenses and removing them from your budget. Cancel your subscriptions and memberships. Challenge yourself to plan and make all of your meals. Dust off your DVDs and watch your collection at home. Host a game night with loved ones. Find creative ways to entertain yourself and your family for free.

Lower any fixed expenses you can. Once you cut all the expenses you can from your budget, go through and see what fixed expenses you can lower. Many utility companies, cell phone providers and cable companies will work with you to offer more economical options, including putting you on a different plan or offering a discount. Check to see if you have a contract with the company – this is typical with cable and cell phone providers. If you don’t have a contract, consider shopping around for lower rates and introductory pricing. This is especially good for insurance costs. Often times, you may be able to stick with your current provider and get a lower cost by telling them you’re switching to a different provider.

When it comes to debt payments, work with your lender and see if you can lower your interest rate or, if in dire straits, defer payments. Many mortgage lenders offer assistance for those facing financial hardship. Such available options may include a refinance, mortgage modification, repayment plans or mortgage forbearance. The best thing to do is contact a mortgage expert, explain your situation and discuss your options.

You can take other actions to lower some of your fixed expenses. These hacks may include setting your thermostat a few degrees lower, adding extra insulation to your windows, installing LED lights, taking shorter showers and changing your air filters regularly. You can cut transportation expenses by carpooling to work or taking public transportation. You can save money on groceries by using coupons, shopping generic and avoiding junk food aisles.

Reassess Your Goals

In times of an emergency or a financial hardship, the most important goal is being able to pay your bills. That means any other goals take the back seat. Until your income goes back up or your hardship has passed, you may need to pause the progress your making elsewhere. For example, if you’re contributing to a vacation fund, stop. If you’re aggressively paying off debt and making extra payments, hit pause on the aggressive part and bring your payments back down to the minimum only. That extra money should go toward paying your bills. And if your emergency fund allows you to pay your bills and still have some money left over, your next priority should be to build up your emergency fund, if you are able.

Give Yourself Breathing Room … And Grace

Even at your most disciplined, you may incur certain expenses you weren’t expecting or forgot to budget. So, when you’re creating an emergency budget, make a category for unexpected costs. Depending how much money you can spare, you could set aside $25 or $50 or less. Along with a little breathing room, give yourself a little grace as you work through your emergency budget. It can be hard to get used to living on a bare bones budget and giving up your luxuries. You may slip up here or there, and that’s OK. Learn from it, adjust your budget when necessary and move on.

Save Any Extra Money

Once you create an emergency budget and have the new expenses listed, add them all up. If you are not currently earning an income, this will be the amount of money you’ll need to cover your expenses for the month. If you are still earning an income, subtract the total of all expenses in your emergency budget from your income and move any money that’s left over to your savings account or emergency fund. Just provide yourself some wiggle room, so your account doesn’t go into the negative if there’s a higher charge or a charge that wasn’t expected.

Here Is A Sample Emergency Budget













Heat/Natural Gas



Cell Phone





$90 (just internet, no cable)

Car Insurance









Car Payment



Student Loan



Credit Card


$75 (minimum payment)

Unexpected Costs









Vacation Fund



Dining Out






Gym Membership



Streaming Services









Once Back On Track, Rebuild Slowly

Once your income returns, is supplemented or steadies and the emergency or hardship has subsided, it may be tempting to return to your normal life as soon as possible. Instead, rebuild your “normal” budget slowly. If you’re doing well living on your emergency budget, consider extending it while you work on replenishing or building your emergency fund. Start adding in other expenses gradually. Remember that, just because you can add an expense back in doesn’t mean you have to. If you were able to stay fit at home, keep working out at home instead of rejoining the gym. If you were able to live without going for daily coffee runs, maybe treat yourself to one coffee run per week, instead. Once you create your new, less-stringent budget, reevaluate your financial goals and start them back up when you feel ready.

Other Financial Steps To Take

When finances are strained, it may be helpful to find ways to supplement your income. Consider selling items you no longer use, asking for a raise or getting a second job or side hustle.

During this time, you’ll also want to monitor your credit to make sure your current situation isn’t having a negative impact on your score. With a higher score, you may be able to get better terms on loans, easier loan approval and better insurance rates.

It’s also wise to talk to your financial advisor, who can help you create an emergency budget and offer other financial guidance that is tailored to your specific situation.

Lauren Nowacki

Lauren is a Content Editor specializing in personal finance and the mortgage industry. Her writing focuses on reporting the best places to live in the U.S. based on certain interests and lifestyles. She has a B.A. in Communications from Alma College and has worked as a writer and editor for various publications in Philadelphia, Chicago and Metro Detroit.