There are signs the United States is recovering from the devastation caused by the coronavirus pandemic.
In June, the country created 850,000 jobs, more than expected, and is now 7.13 million below February 2020 levels. The Congressional Budget Office said on Thursday that the economy was on track to recover all jobs lost due to the pandemic by mid-2022, even as the deficit grows.
And the The consumer confidence index released by the Conference Board on Tuesday reached 127.3, a 16-month high, showing that Americans are feeling good about the economic recovery.
Yet, as Americans open their wallets and return to some of the activities they have missed the most during the pandemic, caution is in order. The context is not the same as in February 2020, which means that an old budget may not work for the current prices of goods and services.
It could cause some to submerge in hot water if they 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 eventually become bad habits later on.”
Here’s what financial experts recommend Americans keep in mind when rethinking their post-pandemic budgets.
Determine your new normal
After a year of social distancing, behind travel, and most of all staying home, Americans can resume many activities they’ve missed in the past year and a half.
People should take this opportunity to reassess their spending priorities and make sure they are spending on the things that are most important to them, 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 shopping? Did we miss 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 their money is going. Then take a look at their expenses and see if they match those values.
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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 shaken everyone’s social life 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 gasoline, 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 is it going to cost to go out to dinner?” ” he said. Additionally, rising costs could mean that some projects may have different prices or even be delayed, Owens said.
For example, something simple like replacing the wooden fence in your garden can take more time and money due to the recent shortage of lumber, costs that may not have been covered. integrated 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.”
An important part of a budget is making sure that you allocate enough of your income to savings in an emergency fund, according to experts.
“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 replenish those emergency savings first before overspending or even prioritizing debt repayment, according to Giardino.
The rationale for building an emergency cushion first – or simultaneously paying down debt, if possible – is that if you experience another setback such as your car breaking down or needing to fix your washing machine, you can take care of it without incurring more debt. , said Giardino.
“Once you have that safety net, you have 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 break it down into monthly amounts you can save, Giardino said, adding that it will likely take months or years to reach the goal.
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