With the COVID-19 virus spreading across the world, staying physically healthy is the number one priority for most people, said Rebecca Lake of business news Forbes. However, everyone also needs to overcome new challenges, specifically those that involve finances. In the US, the federal government passed an economic stimulus package to help many Americans get through the pandemic. But this is only a short-term solution.
Encouraging people to make a long-term emergency budget can help them stay afloat amid financial challenges or if they think they will be laid off from work. Creating a budget may entail reducing expenditure on certain expenses to cope with the financial strains brought by the pandemic.
Spending Habits of 1,500 Americans During the Pandemic
Mass Mutual, an American mutual life insurance company serving five million clients, and PSB polled 1,500 Americans (1,000 nationwide and 500 in Massachusetts) in July, revealing that 17% of participants spent more during the pandemic. 36% said they were spending the same amount while 47% said they were spending less. Among Gen Z and Millennials, 28% were spending more (versus 10% of Gen X and Boomers), 34% were spending the same amount (versus 38%), 38% were spending less (versus 52%).
Between genders, 19% of women said they had been spending more unlike 15% of men. 36% of women said they were spending the same amount (versus 37%) whereas 46% said they spent less (versus 49%). Some of the respondents said they spent less on vacations (63%), day trips (54%), weddings (50%), summer wardrobe (49%), and beauty/well-being treatments (41%). Other respondents spent less on virtual seminars/events (38%), hobbies (30%), home DIY projects (30%), takeout/delivery (28%), and streaming services (18%).
When asked if the respondents canceled a summer vacation or activity due to the pandemic, 67% of respondents said “yes” and 33% said “no.” The money from the cancelation was saved for a vacation later this year (32%), placed in their regular savings account (30%), used it to purchase necessities (26%), paid off debt (16%), and placed it in their emergency savings fund. Other respondents said they spent the money on non-essentials (11%) or used it to enhance their home/yard for at home enjoyment. 8% said they put it towards education costs while 6% said they did not get their money back.
When asked how have their savings been affected since the beginning of the pandemic, 10% said they saved over $5,000 and 13% said they saved between $1,000 and $5,000. 7% and 6% said they saved between $500 and $1,000 and less than $500, respectively. 4% had spent less than $500 from their savings and 6% spent between $500 and $1,000. Only 5% said they spent over $5,000 from their savings whereas 43% answered “My savings have not changed.”
Some of the factors that helped the respondents save money since the pandemic were no longer taking a vacation or traveling (56%) and no longer spending on nightlife (33%). 28% of respondents were also able to save money because they no longer spent on personal care/grooming and clothing or transportation (21%). 22% reported halting their gym membership or fitness classes.
How to Budget Your Money Like A Boss
1. Assess Your Income and Assets
You need to figure out what your new baseline for your income will be if you had your hours reduced or lost your (or even a family member) job. This will determine how much you will need to deduct from your budget. To illustrate, if you had your pay cut by 50%, then that would entail cutting over 50% of your regular spending.
This is applicable if you are spending the same amount you are earning or less every month without creating debt. Then, include the unemployment benefits you received from your local government. In the US, you can receive $600 for up to four months. Check your savings and see if you can tap into it. Ideally, you have an emergency fund to cover at least three to six months’ worth of expenses. Add everything up and assess how that amount can supplement your income.
2. Categorize Your Budget
Write down everything your household spends money on in a normal month. Start with your expenses on maintaining a basic standard of living such as food and utilities. Debt repayment can also be included in this list. Make a second list containing your variable expenses and discretionary spending, which may include hobbies and entertainment, shopping, and clothing.
For your third list, you can include car insurance premiums you buy biannually or property taxes you pay on your home each year. You can also create a fourth list for your future expenses such as retirement savings or an emergency fund, suggested Elizabeth Gravier of CNBC Select, a website that helps readers take control of their money. This list will include any money that is left over after covering your bills and current expenses.
3. Reduce Non-Essential Spending
Prioritize your needs rather than your wants. Don’t buy new clothes when you need to pay for your rent or electricity. Cut down expenses on dining out, entertainment, travel, unnecessary subscriptions, electronics and gadgets, and more. Removing them might be heartbreaking at first, but if you are “under a shelter in place order” or actively practicing social distancing and staying home, cutting down on them may be less of a heartbreak. The goal here is to reduce as much as possible to retain your savings and income.
4. Plan Ahead
Don’t wait for the worst to happen. It is better to exercise foresight to reduce the pandemic’s impact on your budget and savings. If you think you can’t afford your rent or mortgage, be sure to have a clear plan for dealing with it— be it contacting your family or friends for help, renting a room out in your home for extra cash, or seeking financial assistance from your mortgage broker. Contact your creditors to see if you qualify for a reduced interest rate on your payments if you are having difficulty paying your credit card bill. You can also ask your creditors for discounts and deferment options.
Budgeting can be a tricky task, as it will require households to cut back on non-essential spending and live below their means. With the pandemic causing social and economic disruptions, households need a plan of action to stay afloat amid uncertainty.