The COVID-19 pandemic has led to many changes. One of them being changes to your everyday or monthly budget. For example, you may find yourself relying on government support to care for your family and make ends meet. But at the same time, your quarantine lifestyle may have also led you to develop more frugal spending habits.
That’s why now is an ideal time to create a thoughtful budget (or update an existing one) that reflects your new reality. Here’s a step-by-step plan that can help you create a family budget that works for you.
Step 1: Find a way to track your current and future spending
It’s hard to know if you’re sticking to a budget if you haven’t first identified where your money’s going. You might think you know what you’ve spent in a given category – and you might be wildly off. That’s why it’s vital to start your budgeting plan with a tracking plan.
The good news is that it’s easier than ever to track your day-to-day expenditures. Since our smartphones are almost always within reach, many consumers choose an app. Options include:
- a registered app attached to your financial account or
- an app that services many financial institutions.
Alternately, you can opt for a spreadsheet document or just an old-fashioned notebook where you jot down purchases.
You can also use an online budget calculator like this one to help you take charge of your money. A budget calculator can help you manage your spending and understand if you’re:
- falling short,
- breaking even or
- coming out ahead.
The key is to choose the method that works for you – and one you can stick to, month-to-month.
Step 2: Calculate your current expenses vs. your income
What do you do after you have a plan for how you will track? Pull out all your bills for the last six months so you can see where your money is currently going. Then, divide the amounts into fixed expenses and variable expenses.
The fixed categories include those that are the same month after month, such as:
- car payments,
- cell phone charges,
- debt payments,
- childcare or tuition,
- transit costs and more.
The variable expenses are everything else, like:
- gifts, etc.
Add up both buckets and compare it to your family income. This will help highlight any gaps, especially if you or your partner have lost some income or have been laid off.
Not sure where to start in terms of a practical budget? One rule of thumb to consider is the “50/30/20” rule. In this budget model, you can devote:
- 50% of your budget to “needs,”
- 30% to “wants” and
- 20% to savings.
Step 3: Identify areas where you can save money
Normally, optional variable costs are the easiest to cut from your budget as a way of saving money. But given new conditions related to the pandemic, you may see obvious cuts in the fixed expense area.
For example, do you see yourself working from home for the foreseeable future? Then you might be able to get by with just one car. Doing so would eliminate a car payment and lower your insurance costs.
You also might be spending less on childcare, as well as transit or other commuting costs. And sometimes it only takes a phone call to renegotiate your cell phone or cable packages.
Next, take another look at those variable costs. During the pandemic, you may have removed expenses like hitting the gym, dining out or going out to movies and concerts – since these were off-limits.
But as the world reopens, many of these opportunities have or will become available once again. So this is a good chance to:
- consider each expense that was removed by necessity and
- see what cuts you can stick with to save money.
For example, you might have discovered you enjoy preparing a leisurely meal with your family instead of dining out. Similarly, you might find that you prefer the comfort of your couch to a movie-theatre experience.
Step 4: Track your progress and be realistic with your budget
When we’re making a budget, it’s easy to be overly optimistic and slash spending to the bone. Later, it can become clear that’s unrealistic.
Sure, in an ideal world you make all your own meals and never eat out or order take away. But inevitably there will be days you’re too busy or tired to cook. So you may not want to entirely limit your food budget to only groceries.
On the other hand, you might find that with many social engagements cancelled, you’ve over-budgeted for clothing and can make do with what you have.
The key is to consider the trade-offs. If you’re spending more in one category, then another category may need to be cut in order to break even.
Step 5: Make changes as needed and keep tracking your expenses
The best part about a budget is that you can make changes at any given time to fit your lifestyle.
As travel opportunities become more available, you may want to consider a weekend getaway. And if you’ve been keeping to a strict or inflexible budget, you might need to find room for a well-deserved splurge.
You also may decide to adjust your tracking method. If you routinely forget to record impulse buys, take out the allotted amount in cash. This can be a powerful visual cue when you’re nearing your limit.
You can also work with your friends to help hold yourself and each other accountable. Is everyone in your circle of friends craving together time? Then consider hosting happy hour in your backyard rather than hitting a restaurant patio. Chances are, most people you know may be looking for ways to cut back, too, and will appreciate the initiative.
Step 6: Get professional help with your budget if you need it
Sticking to a budget is hard. But the payoff is the feeling of freedom that comes with relative financial security. And don’t forget that occasional splurge – you’ve truly earned it.
However, if you find that you need extra help creating a budget that works for you, you may want to talk to an advisor. An advisor can help you identify areas where you could cut back, without sacrificing savings. They can also help you develop and stick to a workable budget that meets your:
- short-term financial goals during quarantine and
- long-term financial goals after the COVID-19 lockdown comes to an end.
Most advisors now offer to consult with people by phone or Zoom video chat. Connect with an advisor today.