- COVID-19 forced changes in spending, including lower costs for work-related activities and entertainment.
- When the economy returns to normal, those costs will once again rise.
- Taking steps today to address budget differences can protect your finances.
2020 was an odd year in so many ways. Most people could not commute to work, visit their favorite restaurants, go to the movie theatre, or travel as you did in previous years.
Those changes affect spending habits and your monthly budget.
Cooking at home became popular, driving down restaurant spending. Remote work environments eliminated the cost of commutes, business clothing purchases, dry cleaning, and lunch meetings. Business closures and lockdowns drastically reduced the availability of entertainment and travel. Prices artificially declined as families began working and schooling children from home.
In addition to lower costs, government stimulus packages unnaturally increased revenue for millions of citizens. In some cases, consumers used the funding to stay afloat. In other instances, the extra income allowed them to get their financial house in order.
While unemployment rose to a high of 14.8% during the height of the pandemic, 85.2% of the population remained employed. Not everyone experienced a financial disruption, meaning you could be better off financially than you were a year ago.
Whether you faced a financial disruption or enjoyed bonus income,it is time to re-evaluate spending to stay on track financially as things return to normal.
Here are five things you can do now to protect your finances:
- Review Spending: The pandemic turned spending upside down. Closed businesses, remote work, and stay-at-home orders changed the way you spend money. You might have slashed transportation costs because you now work from home. Remote work also altered other spending like lunches out or after-dinner drinks with co-workers. Food costs typically fell because cooking at home is more cost-effective than eating out. Closed entertainment venues lower spending and reduced travel, artificially lowering costs during the last year.
As things get return to normal,costs will also rise to pre-pandemic levels, plus inflation.
- Pay Attention to Inflation. Closed businesses also extended to manufacturing and imports, disrupting the supply chain. These interruptions increased the cost of many goods. Prices on gas,food, and lumber have all risen sharply in 2021. Pent-up demand drives up the cost of entertainment as people fight to get into limited seating attractions and events. The higher prices will impact your budget and monthly spending plan. Review what things currently cost and adjust your budget accordingly to have an accurate view of your monthly expenses.
- Balance savings and debt reduction goals. You may want to get rid of debt as fast as possible, but you should also have some money in an emergency account to cover unexpected costs. Paying off debt, only to immediately charge new purchases, can be both counterproductive and discouraging.
- Create a post-pandemic budget that accounts for new spending levels and takes into account your debt reduction, savings, and investment goals.
Now is the opportunity to get your financial house in order. Make adjustments to your budget to accommodate changes in the past year. Going forward, will you return to the office or continue to work from home? Will your children return to in-person classroom learning or remain in a remote learning environment? Is a summer vacation on the calendar? Are your favorite restaurants reopening?
These lifestyle changes may continue to impact budget and spending habits. When you have a clear understanding of how the pandemic affected your budget, and what the new normal looks like from a spending perspective, it will help you prepare for higher costs in the appropriate areas.
