Sean Heberling
Written by Sean Heberling
Last updated: Jul.07,2021

Keeping Your Finances On Track During A Pandemic:

Saving For Another 12 Months

Since COVID-19’s outbreak, the economy has continued to struggle, and it won’t be improving in the near future. There are about a million unemployment filings each week, and vaccination could be years away. In a recession, it’s smart to know your financial situation and create a budget. A temporary budget could be connected to an emergency fund, compensation for a loss of income or the repayment of debt. Consider also that you can constantly reassess your budget as circumstances change.

According to the COVID-19 Summer Spending Survey from MassMutual, almost half of the participants said they spent less money this summer compared to last. As a direct result of the pandemic, some people have had less time to try entertaining themselves or travel, eating out etc. Making these trends a habit is an excellent way to save for an emergency and for savings.

50% For Living Expenses

A number of expenditures are important - housing, food, health insurance, car payments, utilities and internet service, etc. Most people spend about half of their budget on these essentials. Add up your monthly expenditures based on these categories and see how much you have actually spent.

If your current expenses exceed your monthly income, you should think about lowering them. Could you lower your insurance rate by shopping around? Are you willing to take on a roommate or move into a smaller apartment? Is it worth it to subscribe to Netflix, Disney+, HBO, and Hulu? You can boost the budget or find ways to trim down expenses if you are struggling to spend 50% of your budget on necessities.

20% To Repay Debts And Build A Contingency Fund

Next, you should prioritize repaying your debt, and then setting up a contingency fund. Build a repayment plan for your loans or credit card debt, and discuss with your creditors what relief options they can offer you under their COVID-relief plan.

A contingency fund should have between three and six months of expenses set aside. You can never predict if your income will decrease in the current economic climate. Around 41% of respondents in MassMutual’s COVID survey for the summer of 2014 said they plan on using their summer savings to build an emergency fund. Budgeting for financial burdens and preparing for future ones should be part of your budget.

A 20% Discretionary Budget

In addition to that, you should also budget 20% of your budget for all the small things that bring you joy. A personal account is the place where you buy things for yourself - like books, clothes, and entertainment. Many people are probably canceling gym memberships, eating out less, and not going to movies or concerts already. By getting creative, you can continue to spend within this category:  YouTube can assist you with home haircuts, birthday craft ideas, and making homemade lattes.

Save 10% For Savings And Retirement

Every month, save a little money for your future. Save money for various purchases, such as a vacation, home renovations, and a down payment on a home or car, not just for emergencies.

You’ll have more money when you retire if you invest in retirement early. (There is much more at stake due to compound interest.). Your company may even match your contributions. Investing just a little can make a big difference when you retire.

Quick Summary

Budgets of this type should not be seen as prescriptive. The percentage of your income you spend on living expenses may need to increase if your income situation has changed. For easier tracking of spending, try using a budgeting app.

Jake Sadler, CFPR at Woodstone Financial, suggests preparing for the economic reopening after COVID-19.  The likelihood of a groundswell of consumer spending when regulations are eventually removed is due to the reopening of many establishments, an increase in traffic, and restaurants filling with guests.

Reopening the economy may lead to consumers experiencing delayed gratification. People are likely to spend more after several months of isolation, restrictions and spending reductions. Returning to important activities and spending habits is great, however, the danger of doing too much at once comes from a budgeting standpoint. Once movie theaters open again, don’t put your budget at risk.

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