How to Create a Bare Bones Budget

Here’s a life question we should all think about: Should you find yourself in a situation where your monthly income is significantly reduced, how much money would you need to get by? We’ll show you what you need to consider and how to create a bare bones budget.

Have you ever been in a financial situation where you had just enough money to squeak by every month? I have! Maybe you’re on maternity leave and dealing with a significant pay cut for a few months. Or maybe you’re dealing with a spouse’s job loss, or have lost some of your own freelance or self-employment income.

Whatever the reason, when you find yourself with no money left at the end of the month, it’s time to trim back to a bare bones budget.

Even if you’re not currently in a bare bones budget sort of situation, you may want to go ahead and write out what your essential budget would look like right now. If you lost your job, how much money would you have to pay each month to keep the lights on and food on the table?

Why do you want to know this figure even if you’re ripe with extra cash at the moment? For one thing, it helps you set your emergency fund target. Too often, people think an emergency fund should be three to six months’ worth of net income.

Actually, though, in a true emergency, you’d likely be able to cut back your expenses — sometimes dramatically. So, you really want to set your emergency fund goal, at first, for three to six months’ worth of essential expenses.

Related: Is Your Unexpected Expense Emergency Fund-Worthy?

Unless you’re currently only paying out expenses that are absolutely essential, you’ll need to know what your bare bones budget would be. Here’s how you figure that out:

Start with the “four walls”

Here at Dough Roller, we’re not necessarily on board with everything Dave Ramsey preaches, but his “four walls” concept for budgets is pretty solid. Basically, the four walls are the things you absolutely must pay for to keep on living. As Dave Ramsey lists them, the four walls are food, shelter, basic clothing, and basic transportation.

Here’s the thing: your budget for your four walls may look different from my own. So you need to really think about how it would look to strip these essentials back to their minimums in your particular situation. Let’s do a quick case study of the four walls for my own family.

For my family, the four walls would include: groceries, a mortgage payment, utilities payments, one vehicle’s gas and expenses, a monthly bus pass, essential medical expenses, and basic clothing for myself, my husband, and our two kids. Dave Ramsey’s four walls don’t explicitly mention medical expenses, but we do have certain medications that must be filled on a monthly basis.

Those expenses would look something like this:

• Groceries: $400/month
• Mortgage (including property taxes and insurance): $730/month
• Utilities: $150/month (average)
• Car Maintenance, Insurance, and Registration: $150/month
• Gas: $100/month
• Bus Pass: $30/month
• Basic Clothing: $50/month
• Medical Expenses: $50/month
• Total: $1,660

Our current budget actually doesn’t look much like this at all. We spend a bit more on convenience foods, but we could cut back if we had to. Our mortgage would stay the same, but we could be a little less comfortable to save on utilities. (i.e: My husband really likes his air conditioning!)

Learn More: How to Earn Cash Back on Groceries

We currently have two cars, one with a monthly payment. But if the worst happened, we could sell that vehicle and use our paid-off vehicle for my husband, who absolutely must have a vehicle for work. I could take the bus to and from work if I needed to. And our clothing doesn’t have to be very expensive, as my husband and I have fairly casual workplaces, and we buy most of our kids’ clothes secondhand, anyway.

Your four walls might come in much higher or lower than ours, depending on your situation. For instance, maybe you live in an area where walking or busing everywhere is possible. So, if you lost your job tomorrow, you could sell your vehicle and get by without it. Or maybe you must have two vehicles to get both spouses to and from work.

Or maybe you work in a highly formal environment that requires you to have dry clean-only suits for work. If dressing this way is essential, budget for more expensive clothes and the costs that come with caring for them.

The key here is to think carefully about what you would have to pay in this situation, if you were cutting your budget as much as possible.

Add in additional essentials

The four walls are a good starting place and should make up the bulk of your bare bones budget, but you should also consider other close-to-essential expense you may want to add into your budget. This might include some of the following items, depending on your circumstances:

• Phone or cell phone service
• Internet service (especially if you work remotely)
• Coffee shops (if you rely on them for internet access rather than paying for home internet)
• Home maintenance
• Medical insurance
• Additional insurance policies (such as life insurance)
• Professional association fees
• Daycare
• School tuition
• Haircuts
• Toiletries
• Pet care items
• Cleaning supplies

Many of these expenses could be cut out, if not forever, at least for a long time. But some are pretty close to essential.

Related: How to Tell If Your Salary Is Worth the Cost of Childcare

For our family, I’d count phone service, internet service, home maintenance, life insurance, daycare, pet items, toiletries, and health insurance among our essentials. Daycare is the largest of those expenses, but we can’t be a two-income family without daycare. If one of us lost a job, we’d want to maintain our spots at our local daycare, or risk being unable to find daycare when we found a job again. Here’s what these expenses would looked like stripped down and counted monthly:

• Phone Service: $50/month (if we switched to a lower-cost provider)
• Internet Service: $50/month
• Home Maintenance: $50/month for basic upkeep
• Life Insurance: $55/month (we wouldn’t want to lose this coverage!)
• Daycare: $800/month (and that’s cheap!)
• Pet Items: $30/month
• Toiletries: $20/month
• Health Insurance: $250/month
• Total: $1,305

Health insurance is an iffy expense to include here, I think. It depends on why you’re calculating your bare bones budget. If you want to cut back to this budget for the purposes of knocking out debt, then count your current health insurance costs into the equation. But if you’re looking at what would happen if you lost your job, consider how your job loss would possibly make available options like government-subsidized insurance.

Again, your next-to-essential expenses probably look different from mine, depending on your situation. The key is to think clearly about how much you would really need for expenses like these, should you need to cut your budget to the bone.

Steer clear of bankruptcy if you can

What about debt payments? Well, if you’re calculating your bare bones budget for purposes of setting an emergency fund goal, you should include your minimum debt payments.

Related: How to Get Out of Debt… and Fast

But what if the point of this exercise is to cut your budget back so that you can get out of debt? In this case, you might look at your budget like this: First, pay essential expenses, and then put everything else towards debt. In this case, your minimum debt payments (other than those like your mortgage that are part of your four walls) don’t really need to factor in. You’ll just put whatever is left each month towards debt.

For me, long-term debts like my and my husband’s student loans would be part of our bare bones budget. Even if we lost a job tomorrow, we’d do everything possible to pay these debts in order to avoid negative credit consequences. For you, minimum credit card or personal loan payments might factor in, as well.

So, if I’m going to add in minimum student loan payments based on our current repayment plans, that’s $215 per month.

Add it all together

So, if you want to know what your bare bones budget consists of, add these three figures together. For my family, the total comes to $3,180. And again, some of the expenses I’ve included — such as toiletries and even debt payments,  — could be stripped or stretched for at least a short period of time.

With that figure, I could say that the first $3,180 of our income each month goes towards essential expenses. Whatever is leftover can go towards debt. Or I could calculate my emergency fund savings goal — somewhere between $9,540 and $19,080 for the standard three to six months’ worth of expenses.

How to Use this Budget

So, how can you actually use this budget in your everyday life? You’ve got a couple of options:

• Stick to it. To actually stick to this type of stripped-down budget (which I wouldn’t recommend doing for longer than you really need to!), consider doing a cash budget. Pay your essential monthly expenses up front, and then use cash for variable expenses like gas and groceries. Or use a budget tracking tool to make sure you stay within range on all of these line-item expenses.
• Guide by it. What if you just want to use your bare bones budget as a guide, to make sure your spending doesn’t get too out of control in any one area? In this case, write down what you could live on each month, and then start tracking what you do live on.

For instance, say that you know you could feed your family for $300 per month, but you actually spend $600. It might be time to look at ways to cut back on grocery spending!

Or say you could get by without a vehicle if you had to, but your car expenses total to $1,000 per month. Is it really worth continuing to pay that much for your car payment, maintenance, gas and more? Or could you find a way to moderate that expense?

Learn More: 4 Budget Types and the Best Tools for Each

Dave Ramsey says that you should live on a bare bones budget while you’re getting out of debt. Sometimes this is appropriate, especially if you can pay off a big amount of debt in just three or four months. But sustaining this type of tight budget over the long haul is extremely difficult to do. Plus, it might defeat the purpose. The goal of managing your money is to give yourself more options and to enjoy life more, not to live like a miser who never enjoys anything!

Writing down your bare bones budget is a good exercise, though you might not want to actually live on this budget unless you must. But it does give you a place to start when determining your monthly expenses and more.