9 Post-Pandemic Tips To Spruce Up Your Budget – Forbes Advisor
The last 12 months have shown us anything but certainty. Across the U.S., the pandemic, social unrest, economic volatility and widespread unemployment have shaken up the personal finances of millions of Americans.
While vaccines are rolling out and it appears there may be light at the end of the pandemic tunnel, millions are still trying to financially recover from the economic shockwaves. According to the Pew Research Center, of those whose finances suffered during the pandemic, 44% think it will take them three years or more to get back to their pre-pandemic economic situation.
If you’ve lost income during the last year, or even if your finances have been relatively stable, now—as the economy seems poised for a comeback—is a good time to take stock of your relationship with your money.
We spoke with several Certified Financial Planners (CFPs) and other financial experts to get their opinion on one overarching question: Now, more than a year into the pandemic, what is the single most important action that people can take when it comes to their personal finances?
In what is likely a reflection of the variety of experiences people have had during the Covid-19 pandemic, each expert landed on a different choice for the most important action. While the advice is familiar—ranging from cutting back on expenses to saving more aggressively—there are plenty of actionable steps you can take today to spring clean your finances. And even some room for celebration.
1. Take a Step Back to Step Forward
As Ken Van Leeuwen, CFP and managing director at Van Leeuwen & Company, LLC, based in Princeton, New Jersey, it’s “a simple answer on the surface, but much more in-depth when you get into it: Planning. Many people feel affected by the pandemic through the last year, and now is the time to reevaluate your future plans. Begin by creating a vision for your life and how you want it to look.”
It’s important to think about the big picture when it comes to your personal finances. Instead of focusing on cutting out your weekly coffee run, take a step back to analyze what you want to accomplish. Van Leeuwen suggests asking yourself the following questions as you begin your planning:
- How much savings should you have?
- Where do you want to live going forward?
- Do you want to work from home or the office?
- What kind of return do you need on your investments?
- How much risk are you taking in your portfolio?
- Do you have an appropriate amount of insurance?
“Some of these answers have probably changed in the last year due to the pandemic,” says Van Leeuwen, “and now is the time to get a clear focus on your path forward. Planning for the future is an ever-changing exercise, but the pandemic may have accelerated these changes for some.”
Once you have a vision for what you want your life to look like, you can start creating goals and making moves toward achieving your dream life. Any vision you have must come with actionable steps; otherwise, it will only remain a dream. For example, if you envision having a single-family home, identify the actionable steps that will guide you toward achieving that home purchase goal.
2. Look at Your Cash Flow and Spending
For Zuzana Brochu, CFP, Certified Business Exit Consultant (CBEC) and vice president of financial planning strategy at People’s United Advisors, based in Burlington, Vermont, “There is a two-fold answer to this question because, generally speaking, people fall into one of two categories at this point in the pandemic: those with negative cash flows as compared to a year ago, and those with positive cash flows.”
“For many, the pandemic has meant furloughs, job losses and associated economic hardship,” says Brochu. “For this group, the most important thing to do is take stock of where they are financially, particularly from a cash flow standpoint. If their income continues to be negatively impacted, addressing their budget needs to be a priority. I realize that is not a popular thing to say, but this is a time to eliminate as much discretionary spending as possible.”
Discretionary spending can take many forms, including eating out, travel, shopping, a new cell phone, unnecessary subscriptions and holiday expenses. If you are in a financial bind, all of these should be reduced to as close to zero as possible.
“For others,” says Brochu, their “income hasn’t changed over the past year, yet their spending has been curbed due to the limitations that the pandemic has brought about. Less spending on things like travel, eating out, going to shows—even commuting and dry cleaning—has meant that their savings have increased.”
“For this group, the important question is how to best put this extra cash flow to work,” she says. Relevant opportunities include boosting emergency savings, increasing contributions to retirement accounts or paying down debt.
As Brochu notes, “As we surpass one year of the pandemic, it is an important time to reevaluate your cash flow situation—whether you have been impacted negatively or positively on the cash flow front.”
3. Live Within Your Means
According to Vadim Verdyan, head of advice at financial app Albert, “The most important step that people can take as we slowly get out of the pandemic is monitoring their spending and easing back into their pre-pandemic activities.”
“It sounds obvious,” says Verdyan, “but, over the last year, people have been forced to cut their spending drastically. Whether they lost their jobs or just spent less because they were stuck at home, people have gotten used to spending much less over the last year. As the world starts to reopen, they’ll be tempted to experience all the things they missed.”
However, he also wants to be clear that it’s not about restricting yourself from enjoying the money you earn, but rather spending within your means and staying within your budget.
Since many people’s income tends to be fixed each month, Verdyan notes, “If you plan to spend on something you hadn’t been spending on, like nightlife, it has to come from somewhere else in your budget. If the plan is to start increasing the time and money spent out, you should look to minimize spending in other categories such as online shopping.”
“For those people who lost their jobs during the pandemic and have survived on loans, credit cards and government assistance, it’ll be important to focus on repaying these debts once their income starts to come back.” As Verdyan explains, because debt payments take away portions of your spendable income, “you’ll likely have less ‘play’ money than you did before the pandemic, so it’s important to account for this.”
There are several ways to monitor your spending, including using personal finance apps. You also can use a budgeting spreadsheet and apply zero-based budgeting or the 50/20/30 rule. Keep in mind that it’s one thing to create a budget, and a much different—and ultimately more important—challenge to live your budget.
4. Six Months Is Old News for Emergency Funds
Tara Falcone, Chartered Financial Analyst (CFA), CFP and Founder of ReisUP LLC, based in San Diego, reinforces that old norms cannot be applied to the uncertain financial times we have been presented during the Covid-19 pandemic.
“This pandemic has highlighted the need for all of us to be a lot more proactive when it comes to protecting our financial health,” says Falcone, “both while we’re alive and in the event of our, or one of our family members’, unexpected passing. To protect your finances from unexpected events like lockdowns and job loss, you need to prioritize building an adequate emergency fund.”
A traditional rule of thumb was to save three to six months’ worth of essential expenses, preferably in a form that is readily available and not subject to investment risk, such as a high-yield savings account. “Now,” Falcone says, “financial planners recommend six months to a year’s worth if possible.”
An emergency fund is something to be used when life presents an unexpected circumstance such as a car repair or the loss of a job. Unfortunately, the six-months-to-a-year benchmark may be challenging for many to meet who are financially strapped. In that case, start with a small monthly amount. Slowly building your savings is better than having no savings at all, so that when a financial issue pops up, you will have something to fall back on.
For Falcone, the pandemic raises another important issue that many people may be reluctant to address: end-of-life planning. “To protect your finances and your family from an unexpected passing, it’s critical to have at least a will and possibly a trust in place,” Falcone says.
Preparing the necessary documents begins with taking an inventory of any assets you have and knowing who your current beneficiaries are. “Both of these ‘e-words’—emergency funds and estate planning—can significantly lessen stress’s impact on your financial wellness during times of uncertainty,” says Falcone.
5. Focus on Specific Short- and Long-Term Savings Goals
Bryan Stiger, CFP and financial planner at robo-advisor platform Betterment, advises on retirement and 401(k)s within Betterment for Business. He agrees that building an adequate emergency fund is a top priority: “Right now, I think one of the best things everyone can do is to continue building their emergency savings fund.” Knowing you have enough savings “to cover expenses in a worst case scenario can really bring you peace of mind.”
After you’ve begun addressing emergency savings, Stiger advocates for analyzing your bigger financial picture prior to making any large decisions. What are the specific major financial goals you and your family want to achieve?
“One important action is to do a financial check-up where you carefully evaluate your short-term and long-term financial goals,” says Stiger. A financial check-up can range from a simple written list or spreadsheet to a budgeting app, or you can check with your primary financial institution or financial professional to see what tools they offer.
“Just remember to review your finances holistically before making any big decisions,” says Sliger. “That means looking across your entire portfolio—cash, investments, property, etc.”
“Your short-term goals might include purchasing new equipment for remote work, getting some quick fixes done on your house or saving up for a summer vacation, while your long-term goals might include making a downpayment on a new house, a college fund or saving for retirement.”
For those who’ve faced financial hardship as a result of the pandemic, Stiger cautions against overreacting and making bad financial decisions: “For example, if you’ve lost wages over the past year you might consider it wise to go ahead and cash out your 401(k) early. But considering that option holistically, you’d account for the fact that that could create new challenges like added taxes and withdrawal fees, which is why it’s almost never recommended.”
6. Instead of Spending, Save for Retirement
For Juli Erhart-Graves, CFP and president of Worley Erhart-Graves Financial Advisors, based in Indianapolis, “The most important action people can take as we reach the end of the pandemic is to keep a lid on spending.” She urges consumers to focus on the larger picture—looking toward retirement after filling their emergency funds.
“As we get the opportunity to go out and do things again, however tempting it may be, don’t go overboard,” says Erhart-Graves. “Instead, commit to continuing to save each month—finish building your emergency reserves, increase your 401(k) contributions or start an investment account.”
The temptation of treating yourself after a draining year of the pandemic is likely strong, but focusing on the long term will serve you better. The longer you put off starting to save for retirement, the longer you could be missing out on what is essentially free money from your employer—in the form of your employer’s 401(k) match—plus the power of compounding interest. When it comes to saving for retirement, the more years you are able to do so, the better.
She also encourages those who have managed to bolster their savings during the pandemic to continue pushing toward retirement. As Erhart-Graves explains, “For many, the last year at home has resulted in increased savings because we weren’t doing anything or going anywhere. This is great for our financial lives! Build on the momentum!”
To get started saving for retirement, consider opening a retirement account through an online brokerage to begin saving today through a traditional IRA, Roth IRA or taxable brokerage account. These accounts have different rules, limits and tax implications, so be sure to look into each account’s structure.
7. Be Sure You’re Adequately Protected
Since the beginning of the pandemic, over half a million Americans have succumbed to the Covid-19 virus. However, in 2020, just over half of Americans owned any life insurance, according to industry research source LIMRA.
Rich Arzaga, CFP, founder and CEO of Cornerstone Wealth Management, based in San Ramon, California, reminds consumers that while life insurance could have been a panic purchase during the height of the pandemic, it is vital to analyze policies carefully prior to purchase.
“During the period when the pandemic was unpredictable and there was the question of what would happen if a breadwinner or caregiver in the household were to die, that is called survivorship risk,” Arzaga says.
He strongly recommends taking your time to research before purchasing a policy: “Don’t rush out and buy life insurance. The process for making a good life insurance decision is to quantify what the ‘gap’ is that would be left for the survivors if that person died. Check your current life insurance coverage and then properly insure for the gap or restructure your current insurance coverage.”
In addition to life insurance, Arzaga also advocates having adequate disability insurance coverage. “Hundreds of thousands of Americans suffered through illness during the pandemic and were forced to take time away from work. We are speaking now about the risk of disability and the loss of personal income, not unemployment due to layoff,” he says.
Many consumers leave this responsibility to their employer. However, it’s important to understand what disability insurance coverage you have and when benefits would be paid.
Arzaga suggests this litmus test to understand the best course of action: “If you became disabled for medical or other reasons, would your savings allow you to pay your obligations and not disrupt your retirement savings needs? If the answer is no, then you should get assistance on how much disability insurance is appropriate and consider this coverage.”
8. Crush Your Debt
Neale Godfrey, a financial literacy expert and CEO of Children’s Financial Network, Inc., based in New York City, challenges all of us to crush our debt with urgency. And she recommends we start by asking one question: “What do I want to save and what gets tossed?”
“If your habits have changed, like eating more at home with the family, keep that up. You can soon invite friends to join and think about ways to save, like having potluck dinners where everyone brings a dish,” Godfrey says. “Like with cleaning, get back to the way you want things to look. Design your financial life the same way.”
Between student loan debt, credit card debt, a mortgage and car loans, it can seem like we’re surrounded by debt. This can evoke many different emotions, one of them being the complacency that Neale strongly advises against: “Clean up your debt. Debt clutters your life and hangs over you. Build in debt repayment each month and only charge what you can sweep away at the end of each month.”
To begin cleaning up your debt, it is best to start writing all of your debts down, along with their respective interest rates. From there, you can begin estimating when your debt payoff is, or figure out which debt payoff strategy, such as the debt snowball or debt avalanche, is best for you when it comes to eliminating that debt.
As Godfrey concludes, the same as you would with spring cleaning, “Concentrate on what’s most important in your life, and save it.”
9. After All of This, Don’t Forget to Enjoy Yourself a Bit
Mallon FitzPatrick, CFP and managing director at Robertson Stephens Wealth Management, which is headquartered in San Francisco, urges Americans to treat themselves to what makes them happy.
“People in the U.S. are rapidly getting vaccinated and we expect life to slowly return to what it was like in 2019. Last year, we all spent an unprecedented amount of time at home and most likely decreased spending on items such as entertainment, travel and dining out. Plan to spend more in 2021 than you did in 2020 and enjoy yourself,” he says.
Yet he also cautions consumers not to go overboard in enjoying themselves: “Start with your 2019 budget and add additional spending for activities that you had to give up in 2020. Try to stay within your revised 2021 budget and know that it’s okay to spend a little more on the things that make you happy,” FitzPatrick says.
While money and financial wellness are important aspects in life, so is enjoying the money you have worked hard to earn. For many, 2020 was an unprecedented year, filled with immense heartache, lingering uncertainty and having even the simplest pleasures ripped away. As we look forward, FitzPatrick suggests that, because so much additional spending for fun was taken away in 2020, it’s justified to spend a bit more in 2021 to increase your happiness.
In a survey published by fintech company Self Financial, 68% of those surveyed said they had a post-pandemic celebrating fund. If you are part of that group, don’t hesitate to use that fund when you feel comfortable. However, because of the pent-up spending that is beginning to occur as pandemic stay-at-home orders recede, it is just as important to track your spending with tools like budgeting apps. You do not want to exit the pandemic sliding into bad debt.
Start Your Spring Cleaning Today
Spring cleaning your finances after these past 12 months may be one of the biggest challenges you face. Amid the global unrest, uncertainty and overall sadness, tackling your personal finances may sound like a drag. However, this is something that takes a small amount of effort and can result in money-saving results that will benefit you and your family for years to come.
As the pandemic health crisis begins somewhat to subside as vaccines get into arms and the U.S. states begin to reopen, there does appear to be light at the end of the Covid-19 tunnel. Before life fully returns to some sort of normal, take the time to reevaluate what you want your life to look like, and make the personal and financial adjustments necessary to achieve the life you want.