The family budget under an emergency epidemic situation resembles a modest pizza that we try to enrich with borrowed ingredients, commented Rositsa Vartonik, Executive Director and Founder of the Financial Literacy Initiative Foundation (FLI), in an interview for the Bulgarian News Agency (BTA).

The pandemic has shown that a large share of people are financially vulnerable and has proven the need to have an emergency fund, she added, noting that most people do not have sufficient savings.

According to her, Bulgarians generally have savings that can cover expenses for about one month, but in stressful emergency situations the period without income may be longer. Studies conducted before the pandemic (Eurostat data and others) on household vulnerability show that over 30% of people in Bulgaria (and on average in Europe) cannot cope with an unexpected expense. According to a Bulgarian study from 2017, only about 20% can cover an emergency monthly expense of BGN 1,500, which is, for example, the equivalent of one missing salary in the family budget. The pandemic situation has certainly worsened this significantly.

The expert’s advice is to try to start setting aside some money for an emergency fund and to make this a permanent item in the family budget. For a household with two working adults and two children, it is necessary to calculate the minimum monthly expense required to maintain a modest standard of living, and then set aside funds to build a reserve that can cover between three and six months of living expenses, or even up to nine months with more conservative budgeting. Thus, if such a household can get through a month with BGN 1,000 for basic needs—food and household bills—it would need between BGN 6,000 and BGN 9,000 for an emergency fund. It is never too late to start building it, and it can begin with the current salary, the expert commented, adding that one can start by setting aside at least 10% of the household’s total monthly income.

Another important aspect is insurance. Today risks are related to the pandemic, but tomorrow they may involve floods, earthquakes, illness, or the death of a loved one, she noted, adding that such stressful situations are associated with a serious shock to the family budget. Appropriate insurance cannot spare us the unpleasantness or grief, but it can provide financial peace of mind.

Therefore, it is good to have a plan for how much money should be allocated to insurance in order to preserve family financial stability, the expert said. The funds allocated for insurance are not part of the emergency fund, Rositsa Vartonik clarified.

An additional mandatory item—or part of the emergency fund—are savings for health-related expenses, the expert commented, reminding that BGN 100–200 can easily be spent on medication for a family of four during a regular flu. Setting aside this budget item would spare us the burden associated with payday loans, which, according to studies, are most often taken out due to unexpected health expenses. Other options for emergency health-related funds, though associated with certain challenges, include credit cards and overdrafts. Ideally, having health insurance would be best, Rositsa Vartonik believes.

Overall, the expert recommends creating a monthly budget planned on an annual basis, which includes weekly allocations for food expenses, taking into account the phenomenon of the “fifth week” in some months. The annual budget should also include major one-off expenses—taxes, gifts for various occasions, repairs, and compulsory motor third-party liability insurance. These expenses should be totaled on an annual basis and one should consider how to save for them—monthly or quarterly, the expert advises.

In times of crisis, it is advisable to review household expense categories, following the principle that every cent should be allocated for a specific purpose, she believes. The next step is to assess how to optimize expenses without placing the family under financial stress, while also working to increase household income. The simplest approach is to start saving on desirable but non-essential items (with limited resources, we can easily give up some treats). Another option is to use online banking, which saves various fees, or to change tariff plans with mobile operators. The family budget is like a glove—it fits a specific hand—therefore it is determined by the individual lifestyle of the household, the expert noted.

In a situation where one family member loses their job, the expert again recommends analyzing the income and expense sides of the family budget. Then, the expenses that were customary before the job loss must be adapted to the new income level, which implies a significant reduction. At the same time, all possible state support measures—interest-free loans, unemployment benefits, and others—should be sought out and fully utilized.

Regarding investments in oneself, the expert commented that even in a situation where one household member is unemployed, we should not give up investing in education and skills development, as this would help us find a job more easily. We may temporarily suspend payments for courses and look for free online alternatives, or negotiate deferred or installment payments. These models are also applicable to children’s lessons.

In critical situations, the first envelope to be eliminated is the one labeled “Just for me.” During the pandemic, however, it turned out that some people who enjoy dining out or traveling every week have saved money, which could be redirected to other budget items—for example, a better summer vacation, the expert believes.

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