When news of the first cases of COVID-19 broke, we had no idea what the weeks ahead would hold. For some, the transition to working from home was easy. For others, it involved juggling home school, child care, and mental health. For still others, COVID-19 meant taking a dramatic cut in pay or experiencing layoffs or unemployment. No matter how your employment changed as the result of the pandemic, our personal finances had to change as well. Fortunately, we have the time to get our finances together while we are practicing social distancing. But how do you budget during a pandemic?
1. Start with your current expenses.
Thinking about what you’re grateful for in life can help shift your brain into a more positive mindset for the day. You cannot possibly know how to budget for the future if you don’t know how you are spending your money today. Yet we often avoid doing a deep dive into our current spending habits out of fear. We are afraid we will feel shame. We fear what we will find when we take a long, hard look at how we spend our money. We fear that we will discover that the situation is worse than we thought. Unfortunately, the only way to conquer that fear is to go through it.
Begin by pulling statements from the last 30 days from your bank accounts, credit cards, and online spending accounts like Paypal and Venmo. Next, categorize your spending into four categories – housing, food & drinks, transportation, and other expenses. (We will break down those other expenses later. For now, anything that doesn’t fit in the other three categories goes here.) This can be done by copying and pasting amounts into a spreadsheet or if you’re throwing it back to elementary school, with four different colors of highlighters and paper. The trick is to do this exercise quickly. Don’t pay attention to the amounts, we are just placing all of your expenses into four imaginary boxes that we will revisit later.
2. Tackle Food First.
Housing (things like rent and utilities) and transportation (your car payment, maintenance, and gas) tend to be relatively fixed costs. You might spend more on electricity in the winter and more on gas in the summer, but for the most part, you can count on these expenses to remain pretty much the same from month to month. Food and drinks, on the other hand, can vary wildly from month to month depending on how often you go out, how often you have food delivered, how often you grab a morning latte, and how much you cook from home. Tackling the food category instead of the “other” category can also give you a sense of momentum to get you through the next phase of setting a budget.
Next, it’s time to take a look at how you spend your money on food. Some people find it helpful to break it down into groceries and meals out. For some people, it is helpful to break down their expenses into breakfast, lunch, dinner, and drinks, and snacks. Does the majority of your food spending happen on takeout or on groceries? Do you rely on meal prep services or do you love to cook?
During the pandemic, we haven’t been out to eat with friends and likely haven’t been commuting to work. So, chances are, we have spent far more on takeout and groceries and far less on lattes and happy hour. But as we transition to a new normal and more restaurant open for eat-in dining, we can take how we are currently spending money on food and project how that will change. Takeout will likely become meals in restaurants. Groceries may not be as big of a factor as we return to working outside of our homes.
What things do you miss? What things did you discover you could live without?
3. Tackle “Other”.
Now that you have built some momentum and have a little practice at being brutally honest with yourself, it is time to tackle the “other” spending category. This category is a catch-all for the rest of your spending so it may encompass a wide variety of purchases. Take a look at how you spend your money here and break it out into subcategories. Some categories may include subscriptions, clothing, household goods, and miscellaneous purchases. This may be a tough pill to swallow. Rarely do we see just how much we are spending until it is all laid out in front of us. Take lots of deep breaths. It’s going to be okay.
Some of these expenses may have been necessary. Purchasing an additional electronic device so you could work while your children did school work keeps everyone moving forward. Ordering additional cleaning and sanitizing supplies from an online retailer has been a part of our new reality. Yet it is hard to justify a new quarantine outfit for every week of a lockdown.
Next, ask yourself how these expenses apply to life post-pandemic. Will you continue to stream content from all of your different services? Will you need to replace our children’s shoes once they have to wear them again? Will you stop purchasing household items online and purchase them as part of your grocery expenses?
4. Make a plan.
Now that we have done the hard introspection part, it is time to create a plan for the next 30 days. Keep in mind, you will never stick to a budget that makes you feel like you are missing out on life. So, increating your budget, set yourself up for success by working things that are important to you into your monthly spending plan. If you can’t wait to go out to dinner with your friends, don’t cut it out of your budget. Find other places you are willing to cut down so you can enjoy those moments.
Start with your “other” expenses. What are some things you could cut out and never miss? Cancel the subscriptions, get rid of the landline, cut the cable cord, cancel the gym membership you don’t use, slash the things that don’t improve your quality of life. Next, look at the things you do out of habit. Do you shop online when you’re bored or anxious? What can you do to replace that habit? How can you invest in your mental health in constructive ways?
Then (and here’s where we would get in trouble with other budgeting gurus) don’t change anything else. Most spending plans go by the wayside within the first 60 days because they are too restrictive. Unless you are in danger of losing your home, your cars, or your family, highly restrictive budgets (like highly restrictive diets) cause us to eventually rebel. Yet, spending plans that incorporate the parts of our life that we love will set us up for future success. If we enjoy the extra financial health, we will be more likely to make small, permanent changes in the future.
Be sure to repeat the process for your food and transportation expenses. Then, consider taking advantage of low-interest rates and refinancing your home to save additional money in monthly payments or ask your utilities to be averaged out over time so you can anticipate what your monthly power, gas, and water bills will be.
5. Cut Less Obvious Costs
There are a few things you don’t want to skip during a pandemic – health insurance payments, food, comfort items, etc. Then there are those things that you may be paying for and just not need. Did you know your car insurance is sometimes rated based on the number of miles you drive per year? Contact your insurance company and let them know that you are not driving as much and ask how that will affect your insurance rate for the next six months. Or perhaps you can suspend your insurance altogether until you emerge from social isolation.
Also, it is important to take a look at the interest you are paying. If you have credit card debt of any kind, now is the time to take the money you are saving on clothing and dinners out and apply it to that debt. Be sure to call your credit card company first and ask about lowering your interest rate or negotiated payments that will help you pay it off faster. Not only will your credit score improve, but less money paid interest means more money in your pocket.
6. Track your expenses with Mint.
Now that you have a handle on what you are currently spending and a plan for future spending, it is important to track your spending as it is happening. Mint is an app powered by Intuit, the same people that brought us TurboTax. It connects not only to your online bank and credit card accounts, but it will also track Paypal and Venmo spending as well. You can even track your credit score.
As Mint uploads your transactions, it automatically categorizes them into certain categories. Best of all, you can customize these categories to meet your budgeting parameters. Mint also allows you to manage goals like paying off credit card debt or saving for a new place.
Whether you are looking to the post-pandemic future or trying to make adjustments to a new employment situation, budgeting is one of the most effective personal finance tools out there. Doing the hard introspective work now will only set you up for success in the future.