11 Lessons We Learned About Budgeting During a Pandemic
2020 was a real anomaly, and we definitely felt it in our financial lives.
Many people lost work and had to learn to function with less. Some found themselves with a surplus of cash from stimulus checks and reduced spending due to shutdowns. Others used online shopping as a coping mechanism and watched their debt rise along with the number of Amazon boxes stacked in their garage.
As we were all collectively thrown into new financial situations, we learned money-management lessons that we’ll take with us for years to come. Here are 11 notable things we learned about budgeting during a pandemic.
1. Adjust to Lean Times With a Bare-Bones Budget
After experiencing a loss in income (whether it’s a layoff, furlough or reduction in hours), you’ve got to significantly adjust your spending. Enter: the bare-bones budget.
A bare-bones budget prioritizes only your absolute essentials, such as your rent or mortgage, utilities and food. It’s designed to get your spending down to the lowest possible amount.
This budgeting method is also helpful if you’re trying to quickly stack cash to bulk up an emergency fund, pay off debt or save for a big upcoming expense.
2. How to Transition From Two Incomes to One
Living off of one income when you’re used to functioning in a two-income household can be a challenge. These tips on how to cope with less income can help you deal with your changing circumstances.
While some income loss is involuntary — like when you’re laid off — other times there’s a hard choice to be made. This year, many parents found themselves quitting their jobs to take over child care duties when daycares closed or to teach their children as schools switched to virtual education.
As the pandemic stretches on, here are some considerations parents should make before taking a career break.
3. How to Embrace Frugality
2020 has forced many people to spend less money and become more frugal. But it’s not an easy switch for everyone.
We turned to four veteran penny-pinchers for advice on how to practice frugality as a lifestyle.
4. Incorporate Mindfulness Into Your Budget With Kakeibo
Kakeibo is a Japanese budgeting method that’s been around for a century, but it’s taken a while for the Western world to catch up. Translated to mean “household financial ledger,” this budgeting method involves physically writing down your expenses, grouping spending into four broad categories and reflecting on the financial choices you make.
Kakeibo helps you become more mindful about your spending habits and how you can improve your finances month after month.
5. Use The Cash Envelope Method Without Using Cash
The cash envelope method makes your budget more tangible because after you’ve spent all the dollars in your envelopes, you’ve got to freeze your shopping until the next month rolls around. But it doesn’t seem too practical when you’re shopping online or trying to avoid having to swap bills and coins with every cashier you encounter.
Fortunately, you can hack the cash envelope system to fit a cash-free lifestyle using gift cards, budgeting apps, multiple bank accounts or expense tracking. You’ll get the benefits of this popular budgeting method without actually having to carry around cash.
6. Know When It’s Okay to Tap Into Your Emergency Fund
What good is an emergency fund when you feel like it’s taboo to ever use that money? When the situation warrants it — like, ahem, a global pandemic — you want to feel comfortable withdrawing from that account.
If you’re unsure you’re making the right financial move, ask yourself these four questions when considering spending your emergency savings.
7. Know How to Negotiate With Your Landlord
Housing costs are often our single largest household expense. Mass unemployment due to the pandemic has placed millions in a precarious situation — not having enough money to pay rent.
While eviction moratoriums have kept renters in their homes, they aren’t a permanent solution to the problem. Neither is avoiding the letters and phone calls, hoping they go away.
This advice on negotiating with your landlord when you can’t pay rent could help you reach a solution that satisfies both parties.
8. Being Responsible With an Unexpected Windfall is Key
Getting a government stimulus check, a tax refund or another significant financial windfall can be exciting, but it’s good to be smart about how you spend it.
Instead of immediately blowing it on what you want, think about what you need. Are you behind on any bills? Is your emergency fund nonexistent? What big expenses are on the horizon?
Being responsible and creating a budget for your unexpected cash isn’t fun, but your future self will be thankful.
9. Download an App to Track Your Spending
Tracking your spending is one of the first steps to creating a budget that works for you. You need to know what you’re regularly spending so you don’t give yourself a $200 limit for groceries when you normally spend close to $400.
If you’re a pen-and-paper or spreadsheet budgeter, that’s fine. But if you want to take some of the work out of it, download an expense tracking app that’ll sync to your bank account and automatically record and categorize what you’re spending.
Then, you’ll have no reason not to know where your money’s going.
10. Turn to a Financial Counselor for Personalized Money Advice
We turn to mental health counselors when we’re feeling anxious or depressed. We go to marriage counseling to better our relationships with our spouses. But too often, we see our money issues as problems we need to work out on our own.
Talking to a financial counselor, however, can provide you with the assistance you need to improve your unique financial situation. The Association for Financial Counseling and Planning Education can connect you with an accredited financial counselor to help you resolve your money roadblocks.
11. The Importance of Having Multiple Versions of Your Budget
If this year has taught us anything, it’s how to roll with the punches and the unexpected curveballs life throws our way.
Prepare financially for life’s ups and downs by drafting multiple versions of your household budget. In addition to the everyday budget you use during normal times, create a lean budget that you can turn to in times of financial hardship and a fat budget you can work with when your salary increases or you find your side gig to be consistently profitable.
Having these budget alternatives available means you can seamlessly adjust to various financial situations.
Nicole Dow is a senior writer at The Penny Hoarder.