I am working on a “Worst Case Scenario Budget”. It was prompted by the news that the tax cuts from the Bush Administration will expire in December.

I have been unemployed for over two years, therefore, we are not in the 28% tax bracket. In December, my husband will be working “winter hours”. (I am grateful for reduced hours, not layoffs!) So, our income will be on the low side when the tax cuts expire.

I figured what our take home pay would be if the tax bill went up to 28%. It’s not a pretty picture.

I thought my budget was cut as low as it could go. I was wrong. We still have Satellite TV and a cell phone. I could live without those if necessary. But what if I don’t want to?

I have a choice. I can either do without those services if the tax cuts are not extended, or I can save so I have the money for those bills during the remainder of the winter.

I also have to look forward to graduating expenses in 2011. I have estimated the costs, based on what we spent when our older two children graduated. I already approached another parent about combining our parties. More on graduation expenses later.

The important thing is to have a plan and, to quote Mary Hunt of Debt Proof Living, I have to Live The Plan.

There are many things we can do today to prepare for the worst. We can grow our own food. We can pay off debts to ease the budget and we can set money aside toward expenses.

The most important thing I learned from Mary Hunt was to have a contingency or emergency fund. It covers unexpected expenses when you lose a job or go through a rough time.

I will continue to pay myself first by contributing to my emergency fund, even as I make a plan to survive the worst.

What is your plan?