spending

Life After Lockdown: Creating a Budget Post-Pandemic

Creating a Budget Post-Pandemic

For the past few weeks, I’ve been teaching a personal finance class at Mills College. The first class covered cash flow and budgeting, so I asked my students to create a budget for homework. To help them get started, I suggested reviewing their recent credit card and bank statements to estimate their discretionary spending habits. One of the students brought up a great point: “I wasn’t spending like I normally do during COVID, so the last 14 months may not be representative of my spending from now on.”

As it turns out, her statement is true for most of us. For example, 64% of Americans say their spending habits have changed since the pandemic started, according to a Bank of America survey of more than 2,500 adults. In addition, a separate Bank of America survey found that 46% of affluent Americans have been getting their financial lives in order during the last year and expect to reach key financial milestones sooner than their parents did. That means many of us not only changed how we spend our money, but we also developed more financial discipline during the pandemic.

Indeed, our spending will likely look different as the world reopens and life returns to normal. Of course, just how different depends on the person. It’s tempting to splurge on the things and experiences we missed most in lockdown (for instance, we finally have a reason to buy new clothes again!). However, I think it would be fantastic if some of us could maintain the money habits we developed when we had fewer options. Creating a budget that reflects those habits can be a great way to do that.

How the Pandemic Changed Our Spending Habits

Life in lockdown forced us to reevaluate many aspects of our daily lives. As our circumstances and priorities changed, so did our spending. Gyms and restaurants closed, and travel was all but nonexistent for the first part of the pandemic. So, where did our money go?

Self Magazine surveyed 1,300 Americans to find out how their spending habits changed during the pandemic. Of the female respondents, 62% said they used time in lockdown to cook more creatively and spent a lot more money on groceries as a result. In addition to our growing grocery budgets while at home, a CIT Bank survey conducted by The Harris Poll found that spending on food delivery was also up 25% during the pandemic. 

However, food wasn’t the only thing we spent more on in lockdown. According to data provided by budgeting app Mint last August, consumer spending on investments, pets, education, and home expenses was up significantly year over year.

While some of these trends may continue, others will naturally return to more normal levels in a post-pandemic world. It may be helpful to keep this in mind and adjust accordingly when creating a budget for the future.

Good Habits We Developed in Lockdown

Despite increased spending in certain categories during the pandemic, more than half of Americans said they spent less and saved more than usual overall, according to the same CIT Bank survey. Thanks to government stimulus and new spending habits, many people were able to save more and pay down debt.

Notably, CRS reported that credit card balances declined about $76 billion in the second quarter of 2020, the largest quarterly decline on record. In addition, data from Experian shows that on average, Americans’ credit scores increased and payment habits improved in 2020.

Yet good habits extended beyond those experiencing financial difficulties before the pandemic. Of more than 2,000 affluent adults (households with investable assets between $100,000 and $1 million) surveyed by Bank of America, 81% said they took the money they’d normally spend on entertainment, travel, and dining and set it aside for savings and emergency funds during the pandemic.

The Pandemic’s Impact on Women

These statistics certainly paint a rosy picture, and many of us have been fortunate enough to come out of the pandemic in similar or better financial shape than we started. Unfortunately, however, many women experienced unprecedented challenges during the pandemic, setting them back even further on their path to retirement.

For example, the U.S. Bureau of Labor Statistics reported women’s unemployment has increased by 2.9% more than unemployment among men since the start of the pandemic. In addition, data from Washington University in St. Louis showed hours worked by mothers fell four to five times as much as hours worked by fathers. Many women had no choice but to leave the workforce to care for aging parents or children. Female participation in the workforce has not been this low since 1988, according to one NPR analysis.

It’s no secret that women have long been at a disadvantage when preparing for retirement. This is because we tend to invest less and hold more cash than men, contributing to our savings shortfall. However, the main driver behind this shortfall is our lower lifetime earnings due to gender pay gaps and caretaking responsibilities—a trend that only worsened amid the pandemic.

Morningstar reports that 55% of all jobs lost in 2020 (2.3 million jobs total) were lost by women. And 32% of women ages 25-44 say they’re not currently working due to childcare demands, compared to 12% of men in the same age group.

If you’re facing any of these challenges yourself, creating a budget for post-pandemic life might be the last thing on your mind. However, closing the retirement savings gap is more critical than ever. Even one small step in the right direction can help you take control of your financial future.

Creating a Budget for Your Future

My suggestion to the student who spoke up in my class was to look back to 2019 as a spending guide. You may find this advice helpful as you’re creating a budget for yourself post-pandemic. However, if you want to continue the good habits you developed during COVID or create new habits to better prepare yourself for the future, be sure to incorporate these changes into your new spending plan. Remember: small, consistent actions over time often lead to big results.

If you’d like to work with a fiduciary financial planner to help you feel better about your money and prepare for the future, please schedule a call to see if we’re a good fit. In addition, you can check out The Happiness Spreadsheet, a fresh, inspiring approach to budgeting that can help you maintain good money habits and develop new ones.

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Creating New Spending Habits After Shelter-In-Place

Cooking At Home

One of the most desired and, at the same time, hardest-to-do financial tasks is to create a budget and stick to it.

I know this from my personal experience and that of my clients. It is the rare person who enjoys purposefully creating spending limits – because that is what a budget does – it sets limits on spending. These limits are necessary to reach important savings goals like retiring or buying a house, but that doesn’t make them any more comfortable. What if there was an easier way to create new spending habits?

Why not take this rare opportunity to create new spending habits instead of going back to the old?

Admit it- you enjoy cooking more than you thought you did, and you can’t believe how much money you are saving by not eating out as much. You look in your closet and you are dismayed about how many clothes you own and don’t wear – and you don’t think you will need them after you no longer have to shelter-in-place. You’ve enjoyed neighborhood walks and Zoom Zumba classes much more than you ever liked going to the gym. If this is you – take the opportunity to build a new budget around this lifestyle. You don’t have to eliminate all past activities that you once enjoyed, but you may find it much easier to cut back now.

Want to make budgeting more fun? Download The Happiness Spreadsheet, a free tool that helps you create a budget you can live by!

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Just Retired? 10 Ways To Keep Spending Under Control

Just retired? Here are a few ideas about how to keep your spending under control. Does this sound like you?

You have just retired, and you’re exhilarated. Each day dawns with no schedule. You can sleep in or get up early. You can fiddle around the house all day or go out with friends. You can stay out late, enjoy another glass of wine and not worry about being alert for a meeting the next morning. You answer to no one but yourself (or your significant other).

You start to enjoy yourself. You start traveling to places that you have always wanted to go and you find wonderful treasures that you want to bring home. You go out to eat more often because you like being out of the house and you don’t have to get up for anything in the morning. You go to plays, concerts, and other live entertainment more often.

After about a year of pure fun, you want to feel productive. So you volunteer and donate your time and money.

You’re having the time of your life.

What Happens After the Honeymoon Phase of Retirement

Then, the credit card bills start to come in, and the balances due are large. You deplete a savings account and maybe have to sell some investments to pay bills. You start to get worried that maybe you’re spending too much. The stock market is in sideways mode, and you don’t see any growth in your portfolio. You realize it’s time to slow down and take stock of the situation.

If this all sounds familiar, you’re not alone.

It’s not uncommon for people to become accustomed to a certain standard of living or way of life. It’s not easy to adjust. It’s also not unusual to want to enjoy the new-found freedom that retirement brings. Yet, it’s a good idea to be aware and thoughtful about what is going on and try to bring things back under your control.

10 Ways to Keep Spending Under Control

Here are a few ideas about how to keep your spending under control:

  1. Presumably, when you retired, you had spending goals. At the beginning of each year, go back and check these assumptions to make sure you are still on track. If not, make adjustments in your spending.
  2. If you don’t want to cut back on your lifestyle, consider working part-time. Perhaps you can use your skills on a consulting or part-time basis.
  3. While traveling, consider renting out your home to bring in extra cash.
  4. If you have an appropriate space in your home, convert it to an Airbnb rental.
  5. Turn a favorite hobby into a business.
  6. Take more stay-cations. Be a tourist in your own town. It will save you on airfare and hotels, dining out and shopping.
  7. Reassess your need for new clothing and accessories. It’s likely that you don’t need as much now that you’re not going to a workplace daily.
  8. Consider selling items that don’t fit your new lifestyle at consignment shops or eBay.
  9. Let your friends know that you want to cut your spending back and ask for their support.
  10. Find things to do that don’t cost a lot of money.

Remember, sometimes the finest things in life are free.

Do you want to manage your money (and life!) better?

The Happiness SpreadsheetIf you want to think differently about the relationship between your spending, your values and your happiness, then sign up to get your FREE copy of The Happiness Spreadsheet.

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