Budget stress testing

What is Budget Stress Testing (BTS)

 Stress testing a budget involves a more substantial examination of how a budget would cope under pressure due to changes. That is, it examines how a budget would perform under severe or unexpected pressures.

Examples of stress testing on budgets

It’s good when we plan our annual budgets to do a stress test.

Example 1

With spouses, that’s if you do joint budgets. Try to have one month without one spouse’s income incorporated in the budget and see if you will be able to manage through the month. You can also try to do this practically put the income of another spouse in a separate account and go through one month with one spouse’s income and see if you will manage. If you don’t manage think of possible options you will use to go through the month. Will you go to borrow from a friend, take a loan or use that credit card which you have planned not to use, or delay to do that project you wanted to start on and use up your savings?

Example 2

For people who are renting out mortgage properties, on your budget stress test analysis you can put a scenario whereby all your tenants leave without giving you a notice which means that month you won’t have rental income. Will you be able to pay your monthly bond from your income? You have to question yourself.

There are different scenarios you can apply the budget stress testing even in your side hustle projects it’s applicable.

Why must we practice a budget stress test?

  • BST allows risk to be quantified
  • One is able to plan for a rainy day or a storm phase
  • Considering to practice the BST will allow one to be able to react quickly and effectively on stresses placed on the budget.
  • This proactive action is much better than being reactive to changes.

Sure, you can handle stress, but can your budget?

Let’s make our 2020 budget stress-free.

  Author: Talent T. Manyonga

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