There are signs that the US is recovering from the ravages of the coronavirus pandemic.
The country created 850,000 jobs in June, more than expected, and is now 7.13 million below its February 2020 level. The Congressional Budget Office said Thursday that the economy was well on its way to getting all through by mid-2022 The pandemic will regain jobs lost even as the deficit grows.
And the consumer confidence index released by the Conference Board on Tuesday hit 127.3, a 16-month high, showing that Americans are feeling good about the economic recovery.
However, with Americans opening their wallets and returning to some of the activities they missed most during the pandemic, caution should be exercised. The background is not the same as it was in February 2020, so an old household may not work at the current prices for goods and services.
That could end up in hot water for some if they’re not careful.
“It is critically important to reconsider your budget and review how you plan to spend your money,” said Greg Giardino, certified financial planner and advisor at JM Franklin & Company in Tarrytown, New York. “You could easily fall into the trap of spending too much money, especially this summer, and it could develop into bad habits later.”
Here is what financial experts recommend for Americans as they reconsider their post-pandemic budgets.
Determine your new normal
After a year of social distancing, withholding travel, and mostly staying home, Americans can return to many activities they missed in the past year and a half.
People should take this opportunity to rethink their spending priorities and make sure they are spending on the things that matter most to them or that they have missed most.
This is especially true for people who were able to keep and even save their jobs during the pandemic, which means they now have an extra cushion on their spending accounts, said Tess Zigo, CFP, financial advisor at Emerge Wealth Strategies in Lisle, Illinois.
“What should this new normal look like for you?” said Zigo. “Did we miss the frivolous shopping? Did we miss dinner with friends and family? Did we miss the trip? Usually that’s a yes, a fucking yes.”
Zigo recommends that people sit down and think about their highest financial values and where they want their money to go. Then look at their expenses and see if they match those values.
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In addition, many people’s expenses and income have changed over the past year, so budget reassessment is vital.
“Obviously the pandemic has rocked everyone’s social lives and that has affected their finances,” said Christopher Owens, CFP, senior advisor associate at Wealthspire Advisors in Potomac, Maryland.
Even those harder hit by the pandemic can and should do a similar budgeting exercise, Giardino said. He recommends starting with the take-home wage and dividing 50% on living expenses and utilities, 30% on leisure and travel and 20% on savings, if possible.
He also said that people should always budget in whatever way works best for them, whether it be with cash, any number of expense tracking apps, or just a credit card.
When putting together a post-pandemic budget, keep in mind that prices have risen due to inflation, Owens said.
That includes things like gasoline, groceries, and other products and services, he said, and it may mean that a typical pre-pandemic budget doesn’t necessarily work right now.
For those who travel, Owens recommends doing additional research on expenses, such as food or entertainment, to make sure you have enough money to spend on the vacation.
“It’s important to take that one extra step – how much will it cost to go out to dinner?” He said. Additionally, rising costs could cause certain projects to have different price tags or even be delayed, Owens said.
For example, something as simple as replacing the wooden fence in your yard can cost additional time and money due to the recent shortage of wood – costs that may not have gone into your initial budget.
As inflation continues to drive prices higher, Owens recommends that consumers keep a close eye on spending in categories with rising costs over the next few months and years, especially if they are actively traveling.
“It’s probably more volatile in general,” he said. “It would be really good to keep track of your expenses, probably every quarter, as well as general housekeeping.”
Build savings again
An important part of a budget, according to experts, is making sure that you use enough of your earnings for savings in an emergency fund.
“Don’t forget your future you,” said Zigo.
During the pandemic, many people had to reach into their emergency savings funds to stay afloat. Well, even if their earnings are stable, according to Giardino, they should first rebuild those emergency savings before spending too much or even prioritizing just paying off debt.
The main idea behind building an emergency cushion first – or at the same time as you are paying off debt if possible – is that if you experience another setback, such as a deadline, you can take care of it. For example, if your car breaks down or needs to fix your washing machine without running into additional debt, Giardino said.
“Once you have that safety net, you have earned the right to invest more or pay more debt,” he said.
He recommends breaking down income and expenses and then multiplying how much you want in an emergency cushion. Experts typically recommend three to six months of cost of living.
Then take that number and break it down into monthly amounts that you can save, Giardino said, adding that it will likely take months or years to ultimately reach the goal.
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