Protect your financial life with a Defensive Budget


As the Government shutdown continues, nearly 800,000 federal workers will be going without paychecks this week.  According to real estate firm, these workers owe a combined $249 million in monthly mortgage payments.  In addition to the federal workers that are impacted, there are countless businesses and contractors that are facing financial uncertainty. Unfortunately, few Americans are financially prepared to withstand the stress of missing one paycheck, let alone multiple checks.  How many income checks or dividend payments could you miss and still survive?  Do you have a plan B to help you to withstand unforeseen financial strain?

Unfortunately, most Americans are ill equipped and unprepared to withstand any significant financial curve balls.  In fact, according to a recent survey, 58 percent of Americans have less than $1,000 saved for an emergency and 32 percent had no available reserves.  A lack of savings tends to lead to an increase in debt as those dealing with financial hardships look toward credit cards, home equity loans and 401(k) loans to fill the gap.  With interest rates climbing higher, these stopgaps become more expensive, making it difficult to dig out from under this debt in the future.

The first line of defense against financial uncertainty is the cash reserve.  The financial world, (myself included) continually preach about the importance of maintaining at least 3-6 months of expenses in emergency funds.  (Certain one-income families may even consider 9 months of cash reserves.)  While an emergency reserve can help, it is often insufficient for certain circumstances.  Instead of relying solely on reserves, it is often advisable to develop what I call a Bunker Budget.

The concept is simple – develop an emergency plan-B for your budget and expenses if something goes wrong.  Rather than struggle to determine how you will handle a job loss, business downturn, health emergency, long term care need, financial needs of dependents or parents, or even death, consider creating a budget that strips out unnecessary discretionary spending, curbs savings and ultimately reduces the financial short falls until things can stabilize.  Keep this playbook in your back pocket for when serious financial issues arise in the future.

Too often, individuals, families and business owners deal with hardships by simply draining savings accounts, retirement accounts and even education funds when the solution may have been to make more meaningful changes.  Rather than make your financial position worse by prolonging the financial shortfall, implementing your Bunker Budget can help ensure that you protect assets instead of spending them down.  While this process is easier said than done, making changes can help ensure that you get back on a sustainable path for the future.  This may include downsizing, selling vacation homes and relocating as well as slashing “nice-to-haves” like eating out, entertainment, vacations, subscription services and expensive automobiles.

Implementing a defensive budget is certainly not easy and it may require major adjustments.  However, if you are going to have to make these changes eventually anyway, why not do so before irreversible damage has been done through the depletion of assets or accumulation of debt.  Consider creating two budgets, a budget A for “Good times” and budget B for “Challenging Times” so that you know exactly how you might need to react if life throws a financial curve ball your way.

This may be especially critical because of where we are in the economic cycle. While no one can predict the future, it is clear that this economic expansion won’t continue indefinitely.  Ironically, many Americans overlook the need to plan for more trying times when the economy is strong and with unemployment at 3.9 percent, people are quick to forget about the cyclical nature of the economy.  Consider a pro-active approach that addresses what-ifs before they happen.   Since everyone’s situation is unique, consider speaking to your financial adviser to determine the most appropriate approach for your unique circumstances.

Kurt J. Rossi, MBA, CFP®, CRPC®, AIF® is a CERTIFIED FINANCIAL PLANNERtm Practitioner & Wealth Advisor.  He can be reached for questions at 732-280-7550,, & LPL Financial Member FINRA/SIPC.