Stress-Test Your Budget With A ‘Financial Fire Drill’

Stress-Test Your Budget With A ‘Financial Fire Drill’

What would you do if you lost your job? Do you have savings or an emergency fund ready? If you’ve already established a plan for what to do if the worst happens, try stress-testing that plan with a financial fire drill: go a single month without touching your primary income.

Australian money photo by Shutterstock

The idea behind the fire drill, as personal finance blog Save Money, Dammit! explains, is that if you were ever in a catastrophic situation where you no longer had your monthly income, you’d need to dip into your savings or emergency fund to take care of yourself. If you avoid using your monthly income, and instead dip into your backup plan, you’ll see just how well your system can hold up. This can also be a great way to save extra money during the month:

You will save quite a lot of money during this month. While you will technically be pulling money out of your emergency fund, you will still have monthly income and can fill up what you took out of your emergency fund. Not only that, but you will have a surplus of savings from living on less for the month.

For some this may be harder than others, depending on how you store your savings. If most of the money you have saved is invested or it’s not easily accessible, it may be a hassle. However, as Save Money, Dammit! points out, that struggle is the point. If this ever happened for real, it would be hard to deal with. Knowing how to execute your plan in an emergency is what fire drills are for.

Perform a “Fire Drill Month” to Stress-Test Your Budget [Save Money, Dammit via Rockstar Finance]

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