Life may be inching closer to normal—but what about your budget?
Everything about the pandemic changed individual budgets. Spending was down (until it wasn't), and saving was up. Childcare was in flux, and PPE was added to everyone's weekly shopping list.
Many people renovated, remodeled, built new homes or moved to new cities. They changed jobs, lost jobs or changed the way they worked. Some tried to beef up their emergency funds; others incurred added medical expenses.
In fact, 64% of Americans had already reported changing their spending habits in the first six months of the pandemic. With all of those changes, pre-pandemic budgets may not be serving you anymore. It's time to re-visit.
"Whether you're budgeting for a specific need or for a savings goal, a budget is key to achieving your full financial potential," said Alonzo Nieva, retirement plan education consultant at BOK Financial®.
"Establishing a budget is very important, and there are many ways to do it," he said. "You can create a payment schedule or calendar, use an expense envelope system, or use budgeting apps and websites. Use whatever works best for your personality and lifestyle, so long as you know what you owe, when you owe, and how much you owe."
One budgeting rule of thumb is the 50/30/20 method.
- 50% of your paycheck goes to the "must haves." These are basic expenditures like housing, utilities, transportation, food, insurance, child care and minimum loan payments. These are your needs.
- 30% are wants: vacations, gifts, entertainment, clothes, eating out, etc.
- 20% is for savings, retirement and debt repayment. Get rid of debt first and then build an emergency fund.
"A lot of people mix up those must haves and wants," Nieva said. "But being honest with yourself about needs versus wants is a crucial step in creating a budget that works."
For those wanting a more hands-off approach, the 20% can be automated by setting up transfers from checking to savings on payday. "It's important to have a plan for paying down debt, saving for retirement and contributing to an emergency fund," said Nieva. "They're all equally important."
A budget is a living document that should be revisited often to ensure you're budgeting, not just expense tracking, Nieva said. A 2020 survey showed that three out of five Americans have no idea how much money they had spent in the previous month. "It's important to have a handle on your spending and your income," he said. "It's hard to map out where you're going if you don't have a realistic idea of where you are."
To begin, Nieva suggests writing down all monthly income and expenses, and using something like a budgeting worksheet to ensure you don't miss any expense categories. From there, you can see which of the 50/30/20 buckets are overflowing and which categories could be scaled back.
He said if 50/30/20 doesn't feel like the right fit, there are countless other budgeting methods to consider.
"Having a budget may not be glamorous, but it will give you far more control over your lifestyle down the road," Nieva said.