How to Create a Bare-Bones Budget

Quick Answer

You can use a bare-bones budget to drastically cut expenses in a pinch by following three straightforward steps:

  1. List your essential expenses
  2. List everything you can cut from your budget
  3. Use a budgeting tool to create your budget

A person wearing a white sweater uses a calculator while documents are laid out on the table.

A bare-bones budget can help you keep expenses to the bare minimum when money's tight and you can only afford necessities. You can also use a bare-bones budget to save toward a major goal in a short period or to pay down debt quickly.

Bare-bones budgets are very restrictive, so they work best as a temporary measure for drastically reducing spending rather than as a long-term budget plan. Here are three easy steps to follow to create a bare-bones budget, plus situations in which you may want to use one.

1. List Out Necessary Expenses

Before you create your bare-bones budget, you'll need to look at your spending to isolate your necessary expenses from your other spending. One easy way to analyze your spending is to print out your bank and credit card statements for a month and highlight only the necessary transactions.

Typical necessities include rent or mortgage payments, groceries, auto loan or lease payments, gas and utilities, but it's up to you to evaluate what to include in your list. For some people, a home security system or gym membership may make the list; for those who are being strict about cutting everything they can, these could probably go.

Your list of necessities may look something like this:

  • Housing: You'll need to cover your rent or mortgage payments, property taxes, homeowners association fees or any other fixed housing expenses.
  • Utilities: Electric, gas, water and other utilities will stay on your budget.
  • Insurance: This includes auto insurance, health insurance, renters insurance and life insurance.
  • Basic food and hygiene: Meals cooked at home should definitely be considered a necessity, but going out to eat should not.
  • Child care: If you have kids, you'll likely need to include day care, babysitting and other costs of caring for children within your budget.
  • Pet care: Vet bills, pet food, medications, pet insurance and other costs of pet ownership are probably also household necessities.
  • Basic internet and cellphone plan: This is especially necessary if your job allows you to work from home.
  • Health care: Necessities also include over-the-counter treatments, medications, appointment copays and medical bills.
  • Basic transportation: Auto payments, gas, ridesharing, parking and other costs of transportation will need to stay in your budget.
  • Minimum payments on debt: Making at least the minimum required payment on your debts is the key to avoiding credit score harm. To keep your credit in good shape, it's important to include this in your bare-bones budget.
  • Retirement contributions: Setting aside money for retirement should remain a priority even as you're cutting back in other areas.

2. Identify Expenses You Can Cut or Reduce

After listing your necessary expenses, identifying what you can cut should be straightforward. You can get an idea of how much money your bare-bones budget can save you by adding up the sum of the expenses you'll cut.

To cut some of the above expenses, for example, you might:

  • Move, or consider taking in a roommate to reduce housing expenses.
  • Consider whether you can drop unnecessary insurance coverage, or ask your insurance company about available discounts.
  • Reduce your utility bills by using your heat or air conditioning less.
  • Cut your grocery bill down by couponing, planning meals that use low-cost ingredients and by opting for store brands when possible.
  • Opt for generic pet medications or foods that can lower your pet care costs, but consider consulting your vet first.
  • Comparison shop for basic phone and internet plans to see if you can save. You can also call your provider to ask for help reducing your bill.
  • Reduce your transportation expenses by carpooling, working from home or taking public transit.
  • Lower your debt payments to the minimum. Just be sure to have a plan to resume paying more than your minimum payment once your finances recover.
  • In a crisis, you may need to lower or eliminate retirement contributions. But if you can manage, you should still automatically contribute at least enough to take advantage of your employer's 401(k) match if they offer that benefit. Otherwise, you'll be leaving money on the table.

A bare-bones budget is a temporary measure to reduce your spending as much as possible. In ordinary times, it makes sense to budget for things you want or love, like music and TV streaming or fitness classes. But these expenses typically don't belong on a bare-bones budget, in which every penny counts.

3. Create a Bare-Bones Budget

Once you've taken inventory of your essential and nonessential expenses, create a budget that brings your spending down to only the bare necessities.

Consider using a budgeting app to make tracking your income and expenses simpler. Apps like You Need a Budget (YNAB) are especially useful for bare-bones budgeting because rather than simply tracking purchases, you'll allott a specific sum of money to given spending categories.

When Should You Create a Bare-Bones Budget?

Bare-bones budgets are a tool to cut spending down to the bare minimum in a financial emergency or when you're trying to meet a goal. Here are some ways you can use a bare-bones budget:

  • To prepare for a crisis ahead of time: A bare-bones budget can help you keep making housing payments, put food on the table and keep the lights on in a crisis. If you aren't currently in a financial crisis, consider creating an emergency budget as a safety plan. Then you'll be able to quickly switch to the budget in the event of a financial emergency, like a loss of income in your household, a major home repair or unexpected medical bill.
  • To pay down debt: Carrying high-interest debt can restrict you from meeting your goals, so ridding yourself of expensive debt should be a priority. You can use a bare-bones budget to temporarily cut back your spending and funnel extra funds toward aggressively paying down debt.
  • To meet an ambitious goal: You can also use a bare-bones budget to meet a large savings goal, such as a vacation or a down payment, in less time. Keep in mind that pushing yourself to cut out all extra spending is challenging, so consider making a few concessions to comfort and entertainment. Keeping one or two streaming subscriptions and allowing yourself occasional treats isn't likely to break the bank, but could have a major positive effect on your happiness.
  • To cut back: You can use a bare-bones budget as a "hard reset" if you're trying to reel in overspending. After you cut all but the essentials, you can build splurges back into your budget, one by one. This will help you understand your priorities and be more intentional about where you're spending. Of course, there are other, less strict ways to reel in overspending, too, like trying a new budgeting plan, joining an accountability group, gamifying your finances or trying a saving challenge.

Plan Ahead for Financial Health

Creating a bare-bones budget can help you plan for an emergency, stay afloat in a crisis or make rapid progress toward an ambitious financial goal. To fully prepare for an emergency, be sure you're also automatically saving a portion of each paycheck into an emergency fund.

On top of closely managing your budget, monitoring your credit score is a key part of your financial wellness plan. Experian's free credit monitoring can help you track changes to your score and identify areas for improvement.