If someone asked you today how much money you need to live, would you have even a ballpark estimate for an answer?  A few years ago, we didn’t.  Hard times, layoffs and severe household budget cuts have our expenses fine tuned to a near science.  Learning the hard way how much you need to survive is much worse than already knowing where your money goes and what you would need to cut out if things suddenly changed.

Four years ago, right before my son was born, we were making about half again as much as we do now.  Since then, our lowest income has been about one-sixth of that pre-layoff amount.  You really learn what you can live without when you find yourself with almost nothing.  I’m very glad we went through it, actually, because we are much better able to cope when things fluctuate.  That has allowed us to do well on my writing income.

What I’m trying to get at here is that you should know where your money goes before you need to make changes to it.  How much is the minimum you would need to keep living without skipping bills?  Ideally, even in a layoff, you should be able to pay all of your bills and get the necessities, so how would you stand right now if you had a severe income reduction?

Knowing ahead of time will allow you to save properly and have an action plan of what to cut out.  The luxuries we enjoy when money is good, such as cell phones, TV and other entertainment subscriptions, can be among the first to go when money is short.  If you plan ahead for a layoff, however, you may be able to allow for some of those luxuries still.  Trust me, living on the bare minimum is not all that fun, and you may want some little entertainments like satellite radio.

So today, you should sit down and take a good look at your past few bank statements.  See where the money is going and make a plan for what you would do if a layoff or other income reduction hit.  These days, odds are in favor of that happening and it never hurts to be prepared.