Budgeting is an essential part of taking control of your life. Knowing where your money goes means you can start steering your financial ship toward your long-term goals. But most budget efforts are entirely focused on the here-and-now, working with your current income and lifestyle. Which is fine—as long as your current income and lifestyle don’t change dramatically. But what happens if you suddenly lose your income? If you’ve crafted a budget that is a triumph of just-in-time bill paying and paycheck-to-paycheck existence, a sudden loss or reduction of income can be disastrous. What’s needed is a “minimally viable” budget—and you need to create one now, before it’s needed.
What is a “minimally viable” budget?
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The term “minimally viable” refers to the most stripped-down, basic version of something. A minimally viable budget (MVB) is the most stripped-down, basic budget you can live on. It’s a no-frills, worst-case scenario budget requiring the least amount of money each month to keep you and your family housed, fed, and healthy in case of catastrophic income loss. It’s more than just establishing an emergency fund—it’s a plan on how to use that emergency fund, and a way to know how long that emergency fund can last.
Having an MVB is crucial because it helps you avoid panic and mistakes if disaster strikes. We can’t always predict when we’re going to be laid off or become unable to work for some reason. By working out an MVB before disaster strikes you’ll have a plan in place—what to keep, cut, or cancel—in case of job loss or other financial challenges, so you won’t waste time. Being able to apply a plan you’ve already worked out will save you time and stress and enable you to make better decisions in a time of disruption.
Worst-case scenario
Setting up your MVB is straightforward:
Step 1: Decide what to keep, cut, or cancel. Start by working out the least amount of money you need per month to literally keep the lights on:
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Keep. List your fixed expenses, the numbers that are the same every month and that you might be unable to change, like rent or the mortgage. Don’t forget about the possibility of new fixed expenses—for example, if you lose your health insurance coverage, you’ll need to know how much buying your own will cost you.
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Cut. Next, list all the expenses you can’t eliminate, but could reduce, and make estimates of how much you could reduce them. Maybe you can cut down your grocery bill by 25%, or lower your utility bills by adjusting your thermostat or other strategies.
You should consider the possibility that you can adjust or pause debt payments if you call your bank or other lenders (including your mortgage), which might shift them from the “keep” category to the “cut” category, at least temporarily. It might be worth it to create two versions of your MVB—one where you successfully reduce or pause debts, and one where you don’t.
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Cancel. Work out which expenses you don’t need. Be brutal—the key word in “minimally viable budget” is minimally. That means cutting everything you don’t absolutely need—streaming platforms, gym memberships, subscriptions, etc. This will depend on your personal situation, of course. Maybe you’re paying for multiple phones or vehicles, but could get by with one. The key is to go through every single monthly expense and evaluate whether you could live without it. If the answer is yes—no matter how reluctant—add it to your “cancel” list.
Once you’ve worked out what you keep, cut, and cancel in the event of financial disaster, add it all up. The result is the absolute least amount of money you need to survive every month. It’ll be a rough estimate, of course, but it’s a number you can work with.
Step 2: Set a savings goal.
Now you know how much cash you’ll need per month to get by. With an MVB you should start with the worst-case scenario, which is zero income. So your next step is to make sure your emergency fund is big enough to cover you for a meaningful period of time. It takes people an average of three to six months to find a new job, so your emergency fund should cover your MVB for a minimum of three months.
Let’s say you’re single and your average monthly expenses are $3,693, but you can get that down to $2,500 in an MVB by keeping, cutting, and canceling. Your emergency fund goal is therefore at least $7,500 to cover three months of survival, and $15,000 for six months, which gives you a little more breathing room. By working out your MVB, you’ll also know immediately how much time you have to work with if you lose income—if you get laid off and you only have $4,000 in your savings account, you know you have about a month and a half of expenses before you’re in trouble. That’s not great news, but being clear-eyed about your situation means you can plan accordingly and take necessary steps immediately.
Step 3: Extra income
Now that you know your minimum expenses and you have a savings plan designed to give you some time, think about how you might possibly improve things. This isn’t officially part of the MVB, which should remain a worst-case budget (and worst-case assumes no income), but part of having a plan is knowing what moves you can make. That includes a conservative estimate of any income-positive aspects you can add to your financial Armageddon, like:
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Side hustles that you can rely on or launch to bring in at least some cash. Again, this isn’t part of the official MVB, but it’s good to have some plans in place so you can immediately get the ball rolling on extra income—then adjust your MVB as needed to reflect the unanticipated income.
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Severance packages and other potentially mitigating factors. If your job lays you off, they might offer a package that continues your health insurance or gives you a one-time payout, and those numbers could affect your MVB significantly.
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Unemployment. Know how to apply for unemployment ahead of time and have an idea of what those benefits might be. But keep in mind that it can take some time for unemployment claims to be processed and paid out, so you might need to rely on a lower MVB for a time.