Here are the basic budget principles to consider for the new post-pandemic normal.
martin-dm | E + | Getty Images
As the world opens up following Covid restrictions, people are also reopening their wallets.
For many, it’s exciting to regain some sense of normalcy. It could also wreak havoc on personal finances, especially if people are not careful.
“It’s extremely important to review your budget and how you want to spend your money,” said Greg Giardino, certified financial planner and financial advisor at JM Franklin & Company in Tarrytown, New York. “You could easily fall into the overspending trap, especially this summer, and it could possibly become bad habits later.”
Here are some key points people should keep in mind when rethinking their spending and budgeting after the pandemic.
Determine your new normal
After a year of social distancing, not traveling and most importantly staying at home, many people can now resume some of the activities they missed during the pandemic.
Right now, people have the ability to re-evaluate their spending and make sure that in the future they spend on things that are important or that they have missed the most.
This is especially true for people who kept their jobs during the pandemic and were even able to save, which means they now have an extra cushion in their expense accounts, said Tess Zigo, CFP, financial advisor at Emerge Wealth. Strategies in Lisle, Illinois.
“What do you want this new normal to look like for you?” Zigo said. “Did we miss the frivolous errands? Did we miss the dinner with friends and family? Did we miss the trip? Usually that’s a yes, a heck of a yea.”
Zigo recommends that people sit down and think about their top financial values and where they would like their money to go. Then take a look at their expenses and see if they match those values.
Learn more about Invest in You:
Suze Orman: Here’s How To Calculate Your Net Worth
Parents sacrifice financial well-being to help their children: survey
Are you feeling financial stress? Here’s how your employer can help
Also, many people’s expenses and incomes have changed over the past year, which makes re-evaluating a budget extremely important.
“Obviously, the pandemic has turned everyone’s social life upside down and it has affected everything down to their finances,” said Christopher Owens, CFP, associate senior advisor at Wealthspire Advisors in Potomac, Maryland.
Even those who have been hit hardest by the pandemic can and should do a similar budgeting exercise, Giardino said. He recommends starting with your take home pay and allocating 50% to living expenses and utilities, 30% to recreation and travel, and 20% to savings, if possible.
He also said people should always budget in the way that works best for them, whether it’s using cash, a number of expense tracking apps, or just using a credit card.
Keep in mind when developing a post-pandemic budget that prices have risen due to inflation, Owens said.
This includes things like gas, food, and other goods and services, he said, and it may mean that a typical pre-pandemic budget won’t necessarily work just yet.
For those who travel, Owens recommends doing additional research on costs such as food or entertainment to make sure you’ve allocated enough money for the vacation.
“It’s important to take that extra step – how much will it cost to go to dinner?” he said. Additionally, rising costs could mean that some projects may have different price tags or even be delayed, Owens said.
For example, something simple like replacing the wooden fence in your yard can be time consuming and expensive due to the recent shortage of wood – costs that may not have been factored into your. initial budget.
As inflation continues to push prices up, Owens recommends consumers watch spending closely in categories where costs rise in the coming months and years, especially if they are actively traveling.
“He’s likely to be more volatile in general,” he said. “It would be really nice to keep tabs on your expenses, probably quarterly, as well as general housekeeping.”
Rebuild the economies
An important part of a budget, experts say, is making sure that you allocate enough of your income to saving for an emergency fund.
“Remember your future self,” Zigo said.
During the pandemic, many people had to dip into their emergency savings funds to stay afloat. Now, even if their incomes are stable, they should rebuild those emergency economies first before overspending or even prioritizing only paying down debt, according to Giardino.
The rationale for building an emergency cushion first – or simultaneously paying down debt, if possible – is if you experience another setback such as your car breaks down or you need to fix your washing machine , you can take care of it without getting into more debt. , Said Giardino.
“Once you have that safety net, you’ve earned the right to invest more or pay off more debt,” he said. He recommends breaking down income and expenses and then multiplying the amount you would like to have in an emergency cushion. Experts generally recommend three to six months of living expenses.
Then take that number and divide it into monthly amounts that you are able to save, Giardino said, adding that it will likely take months or years to reach the end goal.
SUBSCRIBE: Money 101 is an 8-Week Financial Freedom Learning Course, delivered weekly to your inbox.
Disclosure: NBCUniversal and Comcast Ventures Invest in Tassels.