Achieve Your Budgeting Goals During the Pandemic
As part of Financial Literacy Month, we share budgeting tips you can use to achieve your goals during tough times.
The financial challenges presented by COVID-19 are still very real. Millions of Americans continue to struggle under the burden of job losses, unanticipated expenses, lack of food and housing insecurity. At the same time, the U.S. economy is growing at its fastest pace since 1984.
Whether you're just trying to hang on, or your finances are rocketing back to health, we know budgeting can be challenging, so we spoke with Stacey Black, BECU's lead financial educator, about how to budget during a new phase of COVID-19.
Practice Grace First
For starters, Black said that if you're struggling with your finances due to COVID-19 (or for any reason), practice grace where possible; try not to blame yourself and cut yourself a little slack.
"No amount of financial planning could have prevented some of the challenges of this past year," she said. "Many people who were financially stable before the pandemic experienced financial stress. Being prepared is one thing, but preparing for a global crisis is a different story."
It's Never Too Late To Start a Budget
While financial tips can't solve the broader issues that can affect your ability to work and pay essential bills on time, having a financial plan in place can help you make the most of your resources now and put yourself in the best financial situation moving forward.
To help move yourself in the right direction, it's important to track how you're currently spending your money. Save receipts and write down whenever you make a purchase (or access your transactions through your online banking options), then sort them into categories like "groceries," "utilities," "gas" and "clothes." Some financial institutions even offer helpful ways to track your spending online.
"Looking at your list, you can start to see patterns and may be able to identify areas where you're spending more than you want or really need to," Black said. "This will also help you see if there are ways to momentarily cut or pause nonessential spending. For example, I temporarily paused a monthly movie subscription and put that money towards my savings instead."
You might consider using a budgeting tool that helps you look at your full financial picture and offers strategies to help you achieve your financial goals.
"Developing a budget is a lifelong practice that will pay dividends for years to come," Black said. "If you don't already have a budget, it's important to start building one now so you are more prepared for changes in the future."
Prioritize Essential Expenses
Pay for the essentials, such as housing, utilities, and food, first. For the time being, pay only the minimum payments due if that's all you can afford.
"If your income has been interrupted, consider reaching out to your financial institution to see if they are willing to work with you on changing due dates, reducing your payments or delaying them for now," Black said.
Once you're in a place where you have disposable income, Black suggests looking into other long-term strategies for paying off debt.
Build a Rainy-Day Fund
This year of uncertainty has shown us how important it is to save for the unexpected and save your cash as much as possible for better peace of mind.
Usually, Black recommends saving at least six to nine months' worth of expenses but if you've been struggling, nine months of savings might be daunting.
"What's most important is to save something," Black said. "You can start small. Maybe try to save $500. Once you hit that goal, increase it a little."
Saving is no small feat, so don't get discouraged if you don't "figure it out" right away.
Having financial goals is important because they can help keep you motivated to stick to your budget. However, if you are worried about your income or ability to pay your bills on time, Black recommends pausing savings goals for items like a house or car, and prioritizing emergency savings instead.
To set up a a rainy-day fund, get in touch with your financial institution and open a separate savings account that you will only tap into in the event of an emergency.
"Then, when you can, set up automatic transfers to ensure you're continually saving," Black said. "Having a separate account can help you avoid future debt because you'll be able to cover an emergency or an unexpected expense without having to put it on a credit card or take out a personal loan."
Avoid Making Financial Decisions Under Stress
When faced with new financial challenges like losing a job or surprise expenses, you might feel like you need to make quick decisions to make ends meet or feel financially secure again. Before you spring into action, Black advises that you pause and take a breath.
Selling investments, cashing out retirement savings, paying bills with credit cards, and taking out payday loans are all examples of big financial decisions that should be made carefully and calmly. They can have long-term consequences that aren't worth the short-term payoff.
"During times like this, it can be difficult to stay focused and calm," Black said, "but it's important to take the time you need to do your research so you know what you're getting into before making any large financial commitments."
When possible, explore other avenues for financial security before options that may increase your debt or pull from vital long-term savings.
Give Yourself Treats in Moderation
If you've been struggling financially, you might be thinking of your stimulus payment or tax refund like an opportunity to finally buy yourself a big treat.
Black said that if you have the essentials covered, having a little fun with your money is great but, she advises against spending it all at once.
"We all need a break, and giving yourself a small treat can bring comfort," Black said. "That's all part of giving yourself some grace. The important thing is not to get too carried away. Focus on the basics and keep building up your savings so you're covered for the next emergency."
About Stacey Black
Stacey Black has been a financial educator at BECU for more than 20 years. Black can most often be found leading student workshops on budgeting, credit and more financial topics.