Most American idioms involving bones describe a situation you’d rather not be in. You’d be pretty annoyed if you had a bone to pick with someone. You’d probably be downright unhappy if you were chilled to the bone or worked your fingers to the bone.
And truth be told, you probably wouldn’t love today’s subject: bare-bones budgets.
A bare-bones budget, sometimes called a bare-minimum budget, contains only your essential costs that you need for survival and basic functionality. This skeleton financial blueprint revolves around food, shelter, and other concrete needs. While your standard budget can, and should, include fun, discretionary spending, there is no room for those costs in your bare-bones budget.
Let’s discuss why you might need to temporarily implement a bare-bones budgeting strategy, and how you should go about doing so.
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Why Might You Need a Bare-Bones Budget?
When you’re financially stable, you’re typically able to spend some of your hard-earned money on recreational items and experiences.
But sometimes, life throws a difficult situation your way, and you might need to trim down your costs as thinly as they’ll go. Other times, you might actually choose to adopt a bare-bones budget to quickly accomplish certain financial goals.
Whatever the reason, the goal here should be to figure out how to temporarily operate within a bare-bones budget; ideally, you shouldn’t need to spend your entire life with a bare-minimum budget.
Let’s go over a few examples of when a bare-bones budget might be necessary or even beneficial.
You Want/Need to Pay Down High-Interest Debt
Let’s say you took on high-interest debt, such as credit card debt or a payday loan. In short: The longer it takes you to pay off high-interest debt, the more you end up paying in interest—and for some people, that can snowball to insurmountable levels, ruining your credit and even forcing you into bankruptcy.
Some people, when faced with that situation, adopt a bare-bones budget so they can put every spare dollar toward paying down that debt. And once that high-interest debt is paid off, they switch back to a more reasonable budget.
If You Lose Your Job
A layoff can take you from a two-income household to a single-income household, or worse, it might eliminate your household’s only stream of income. Typically, when you’re laid off, it’s difficult to know how long it will take to secure a new job, or even when unemployment benefits might kick in.
Until more money starts to flow in, it’s best to reduce how much flows out. Indeed, we’ve outlined several steps to take after a layoff, and adjusting your budget is one of them.
Depending on the size of your emergency fund, you might not need to do this, or the adjustments might be minimal and relatively painless. But if you have little to no emergency savings, you might need to initiate a bare-bones budget.
Related: Financial Prep If You’re Worried About Being Laid Off
To Reach an Important Financial Goal
Maybe you’re antsy to buy a house but struggling to save enough for the down payment? Or maybe you’ve always dreamed of having a destination wedding but can’t justify the cost at your current level of savings.
If you’re looking to reach these and similar financial goals as quickly as possible, stripping your budget down the bones can be like strapping a rocket to your savings account.
The thing is, if you’re years away from a financial goal, staying at your absolute minimum budget for such a long time could be unsustainable and exact a heavy psychological toll. Instead, you might want to moderately cut back on certain expenditures while still allowing yourself a few concessions.
But if you’re just a few months away, going with a bare-bones budget can give you that final push.
Related: How to Reverse Budget With ‘Pay Yourself First’ Budgeting
How to Create a Bare Bones Budget
To be fair, there’s nothing really novel about creating a bare-bones budget. The most difficult part is sticking to it.
Still, if you follow these easy-to-understand steps, you’ll have the framework you need to hack your budget down to the marrow.
1. Make a List of Your Expenses
Compile a list of every regular expense you have—no cost is too big or small to include. This should include costs you have on a fixed schedule, such as rent, utilities, and your phone/internet bill. It should also include expenses that aren’t set to specific dates, such as gassing up your car or getting groceries.
And don’t forget to account for some expenses that trigger less frequently, like if you have a quarterly water bill or a semiannual insurance payment.
Lastly, it should also include discretionary expenditures, too, especially common ones; say, if you go out to eat twice a week or buy coffee every morning.
Don’t try to do this from memory. Look through old credit card and bank statements to see exactly where your money has been going.
Related: Budgeting in Retirement: Our Step-by-Step Guide
2. Identify Costs You Can Reduce or Cut Completely
Next, you want to identify anything you can reasonably cut from your budget.
Start with the obvious. Did you go to a few concerts? Buy some video games? Check out a few museums? For the purposes of a bare-bones budget, those are among the easiest things to eliminate. (Remember: This is temporary!)
You might not cut all discretionary spending, however. For instance, I’m a coffee drinker, so I wouldn’t dare suggest you go cold-turkey if you need a caffeine fix. So you might want to find ways to reduce that cost, like making your coffee at home instead of having it out. And if most of your available downtime is spent watching TV, you might not cut back every streaming service, but cancel several that you know you don’t routinely watch. (But there are enough free streaming services, such as Tubi and Pluto TV, that you could go all-free if you really needed to for a few months.)
From there, move on to essential costs, which despite being essential can sometimes be reduced.
For instance, if you commute to work, you’re going to eat some level of transportation expense. But depending on your situation, you might be able to carpool, take public transportation, use a work program that lets you pay for subway/bus/parking costs on a pretax basis, bike to work, walk to work, or even ask your boss if you can occasionally work from home.
Similarly, you need to eat, so you’re not going to zero out your grocery costs. But you might be able to spend less if you changed grocery stores, monitored deals more closely, or switched from name brands to generic products.
I’ll stress this multiple times: Your bare-minimum budget isn’t meant to be forever. It’s meant to keep you temporarily afloat while you either work toward a financial goal or navigate a difficult situation. So these aren’t questions about what you can give up forever, but what adjustments you can deal with until you’ve met your goal or resolved your situation.
Related: Frugal vs. Cheap: What’s the Difference?
3. Calculate Your Bare-Bones Budget
Now, add up all of your essential expenses that can’t be cut or reduced any further. The sum of those costs is your bare-bones budget.
If you’re in a situation where you’ve been laid off or are facing some other financial hardship, you might want to also calculate your cash runway, which is however many months of expenses your savings would cover at your calculated cash burn rate. To find your cash runway, take your emergency fund balance and divide it by your bare-bones budget monthly number.
Related: What Is the 50/30/20 Budget Rule [And Is it Impractical]?
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4. Monitor and Make Adjustments When Necessary
This isn’t a one-time task.
Once you’ve implemented a bare-minimum budget, chances are you’ll see room for change, whether it’s realizing you forgot to factor in additional costs and need to cut a few more things, or realizing you’ll reach your goal much faster, allowing you to reintroduce a few expenditures.
You may even use your transition out of a bare-bones budget to recalibrate your “normal times” budget. As you reintroduce costs, you might decide to prioritize your emergency fund, retirement, and other savings before adding in more discretionary expenditures. (And who knows? After going a while without certain things you used to treat yourself with, you might find you don’t want them as much as you used to.)
Lastly, if you create a bare-bones budget now and need it again in a year, it’s possible your expenses will have changed. Grocery prices might be higher, your rent might have increased, or you might have had a child enter school (allowing you to save on care costs). So if you need a bare-bones budget for a second time, you can’t just turn it back on—you’ll have to recalculate all your costs to be sure.
