- The pandemic created financial disruptions that altered spending habits.
- Preparing for the return to normal should include the creation of a post-pandemic budget to adjust for changes in both income and spending.
COVID-19 altered how we live, work, and associate with others. These adjustments also have a direct effect on your finances. A Bank of America survey concluded that 64% of Americans altered spending habits due to the pandemic. Families surveyed increased spending in housing, education, food, pet care, fitness, and online shopping. But the highest increase was investments,rising from an average of $940 a month to $1,334.
Not surprisingly,decreasesoccurred in entertainment, travel, transportation, and business services, with the most significant decline in financial spending, including financial advisers or life insurance services.
Adjusting Your Budget When Costs Change
Budgets are not fixed in stone, and significant life events require a careful review. When spending changes, you can immediately adjust the budget to account for differences in income, spending, or extraordinary events like the pandemic.
Apply for a Personal Loan Today
Choose Your Loan Amount
The Pandemic Budget
Whether you formally altered a written budget or adjusted spending on the fly, the pandemic changed the finances of most households. In some cases, forced changes occurred when income fell due to a job loss or temporary business shutdown. In others, closed schools, remote work, or getting COVID-19 compelled lifestyle changes that impacted spending.
Operating under an emergency budget necessitates the elimination of every unnecessary expense. You might reduce debt payments to the minimum due, stop retirement contributions, cancel, or suspend monthly subscriptions, and cut discretionary spending on food, entertainment, and transportation.
How to Create a Workable Post Pandemic Budget
As things get back to normal, spending will return to pre-pandemic levels.
The challenge with COVID-19 is that government benefits artificially increased household income, which impacted spending. While costs might return to normal levels, income, in the form of stimulus checks and enhanced unemployment, will come to an end.
In addition to the end of stimulus funding, disruptions in manufacturing, transportation, and business shutdowns directly impact the cost of goods. Gas prices, food, and transportation have risen in the first quarter of 2020. And a year with limited travel and entertainment means pent-up demand will likely drive up these costs.
Get Help Reducing Your Debt
Choose Your Debt Amount
For example, if you return to an office, you need to adjust transportation costs because gas prices rose by more than 50 cents a gallon in the first quarter of 2021. The cost of food saw the highest increase in more than a decade, rising 3.5% over the past year when most annual increases are less than 1%.
Your budget must account for changes in spending and account for higher costs in some categories. Before everything gets back to normal and you face a situation where expenses outpace your income, take a few minutes to create a working budget you will actually use.
Steps to Developing an Effective Budget
- Know your net income. Calculate monthly take-home income, after deductions. If you are self-employed, set aside money for taxes before calculating how much you have for bills.
- Track spending. Current spending may not reflect future expenditures due to the pandemic. Anticipate expenses when things return to normal.
- Set financial goals that will help you prioritize spending.
- Establish a workable plan based on your current income and expenses.
- Adjust the budget as needed. A budget is a living document that ought to represent actual spending rather than the ideal.
If your budget uncovers a deficit that you cannot overcome with spending cuts, debt relief could help get payments under control. Debt settlement is one option that could allow you to pay less than the amount you owe, creating a path to eliminate credit card debt in less than five years.
How did the pandemic change consumer spending?
Consumers spent more money on housing, education, pet care, and online shopping. However, they spent less on transportation, entertainment, and travel.
How does the pandemic affect my personal budget?
The stimulus packages artificially boosted wages for many households, leading to extra income and, in many cases, lower costs. Remote work and closed venues cut travel, entertainment, and transportation costs, which could mean you have extra money for savings or debt reduction.
What are the pandemic relief options that can help me make ends meet?
Unemployment can devastate finances and prevent you from paying all your bills on time. The pandemic brought unprecedented levels of unemployment, but also extraordinary levels of aid. Enhanced unemployment replaced more lost income than traditional unemployment. Mortgage forbearance programs and rental assistance gave families relief from housing payments for up to 18 months. Moratoriums on utilities can prevent shut-offs. Local relief agencies received federal funding to help consumers pay essential bills.