By Jane Young, CFP, EA
Businesses have opened back-up; we can return to our favorite restaurants and many countries have begun welcoming U.S. travelers. This is great news, and we certainly deserve the opportunity to get out and have some fun. Be cautious not to let the excitement of returning to a more normal life lead to overspending. Returning to normalcy will be a transition and you need to be mindful of your spending.
There is tremendous pent-up demand and desire get out and enjoy life. During the pandemic 52% of U.S. households dramatically cut spending. Saving rates increased from an average of just under 10% to 33.7% in April of 2020. U.S. consumers are sitting on trillions of dollars of cash because of pandemic influenced savings and several rounds of stimulus payments.
Revisit your budget to avoid falling into the trap of overspending or careless spending. Develop a spending plan to ensure you are spending on what is important to you and avoid developing bad habits. This does not mean you should not have some fun but do it in a purposeful way.
Create a budget that aligns with your goals and values. You will also need to adjust your spending to reflect any changes to your income and necessary expenses. Determine how much of your budget will be needed for non-discretionary expenses. You will need to adjust your pre-pandemic budget because prices on many necessities, including groceries and gas, have increased due to inflation.
A good rule of thumb is to spend around 50% on living expenses, 30% on leisure and 20% on savings. Everyone is different so you should track and project your spending based on your unique situation. Be sure to include savings as a part of your budget. If your non-discretionary expenses are running substantially over 50%, look for ways to reduce your living expenses.
Once you have targeted money for living expenses and savings, create a plan on how much you want to spend on travel, leisure, and entertainment. Once you have a plan you are free to enjoy without guilt or the fear of overspending.
As we move beyond the COVID restrictions, review your spending habits, and keep some of the good habits you developed during the pandemic and discontinue bad habits or spending that is no longer needed. As our normal lives return, spending on things such as day care, commuting, eating out, going to the gym, travel, socializing and live entertainment will resume.
You may need to cut back on some of the pandemic influenced expenses such as home entertainment subscriptions, home redecorating, food delivery service and on-line shopping to absorb the post pandemic expenses. Alternatively, keep some of the good, money saving, habits developed during the shut-down. These may include doing your own repairs, preparing more meals at home, virtual workouts, virtual meetings and working remotely a few days a week.