2020 was a hard year for many of us. For some, the way we thought about money was irrevocably changed. This comes as no surprise, considering the large number of Americans who lost their jobs, had their businesses close, or were otherwise financially interrupted. Many Americans experienced huge shifts in how they lived their life from remote work and school, online grocery and fast food delivery, and even remote medical appointments. Many of these changes are already becoming permanent parts of our culture, furthering our shifts in financial choices and budgets.
As life starts to settle into a new normal, with everything opening back up and new opportunities arising, it’s a great time to retake control of your finances. No matter how big of a hole you got dug into, you can get yourself out again with a lot of planning, self-control, and deep breaths. Implementing a few key strategies will put you miles ahead of where you were a few months ago.
Remember: with this progress and sense of normalcy also comes peace.
First Things First
The first thing you need to do before you start getting your life and finances on track is get organized. Looking over the state of your finances and how covid has impacted it can stir up negative emotions. You may remember how tough it was going through the global pandemic, may have lingering anxiety and stress, and may be disappointed or upset with yourself if your once abundant savings are dry as a bone.
All these emotions are valid and part of a shared experience between you and the collective. You’re not alone, and you’re not a failure. With some careful planning and a positive attitude, your financials can be turned around and your confidence can return.
Create a New Budget and Stick With It
When getting your finances back in control, you need to start fresh. Create a brand new budget for yourself by starting with your monthly income. This number might have been a little crazy during the pandemic, due to sudden job loss or reeducation in hours, stimulus checks, or a switch to self-employment. Hopefully, now the chaos has settled a bit and your monthly income has stabilized.
After you’ve nailed down what your monthly income looks like, after taxes and everything else is taken out of your paycheck, it’s time for you to really hammer out what your expenses look like. Start with all the true essentials first. These are the things you need to survive, plus all your bills that need to be paid monthly.
Things you should include:
- groceries and toiletries
- pet expenses
- mortgage or rent payment
- utilities, including your cell phone and internet payments
- insurances, including car, life, and homeowners
- vehicle payments, upkeep cost, and gas
- child care expenses
- savings or investments
- debt payments (credit cards, personal loans, etc.)
You may be surprised to see savings as essential, but it really is. This is even more true in a post-Covid world, where security and stability need to be rebuilt. Try to budget a certain percentage each month for savings or investments. You can start small and slowly increase the amount until you’re hitting your savings goals. If you’re not really into pen and paper budgeting, there are great apps out there that can help you monitor your income and expenses. These are all excellent choices even for beginners. Seeing all your expenses laid out for you on one screen can really help you take control and build wealth.
Best expense tracker apps
- Mint
- YouNeedaBudget
- Prism
- Goodbudget
- Expensify for businesses
- QuickBooks Online for businesses
- EveryDollar | Dave Ramsey Solutions
Don’t Forget Overlooked Expenses
There are many things that are easy to forget or downplay when making a budget. One that’s particular to a post-covid society is the rising cost of groceries. Inflation has risen the standard price of many food items, and this should be reflected in your budget. It’s pretty disheartening to constantly go over budget, and this can make you want to throw in the towel. By knowing ahead of time you’re likely to spend more, you can keep expectations realistic.
When you were tallying up all your debts, you may or may not have remembered to slot your federal student loans in. Many people had their loans automatically placed in forbearance during the pandemic. If you’re well on the way to being back on your feet, now is a great time to add this expense back in.
You may be tempted to hold off on this and wait to resume payments until when you’re absolutely required to, but this is a mistake. Right now is a prime opportunity for you to knock down your principal without having to pay a cent in interest. This can be a fast track to wealth and paying off debt.
Child care is another major expense as well, and you may not have budgeted properly for it. If you were working remotely during the pandemic, you might have had dramatically lower childcare expenses than normal. If you’ve made the return to work, it’s important to note the rising cost in your budget. If daycares in your area permanently shut down due to Covid, less competition might have driven prices up as well, so you’ll need to budget for this if you want your child to have the same caretaker.
Create Monetary Goals
It can be hard to follow a budget. Good money management isn’t always fun, but you can gamify the process for yourself by setting detailed goals. Decide how much you want to save over the next week, month, or quarter. Other goals you could shoot for include paying off a certain amount or percentage of your debt over a specified period of time or investing a certain amount into stocks and broad index funds.
You could even take this a step further and make a goal to give so much to charity if your finances are already in decent shape.
Find Small Ways To Cut Back and Rebuild Savings
The more you dipped into your savings, particularly your emergency fund, the more important this step is for you. You should make it a goal to have one month’s expenses saved up in case of a short disaster, but three to six months of savings is a better number to aim for. Your 401k shouldn’t be neglected either if your new budget can swing it. If your company matches a certain percent, you’re basically throwing money away if you don’t contribute.
An easy place to make some quick cuts is your entertainment budget. Maybe you can cut out a subscription or two here and there. Little numbers cascade together into a snowball that really adds up, so think small here. Do you enjoy fancy Starbucks drinks? Can you half the number you allow yourself and save twenty or so bucks per month? Alcohol is another one to check, and halving the amount you spend here can save more than you might expect.
Working remotely is something you may want to continue if you’re interested in saving as much as possible. Without the need to pay for a commute or special clothes for the office, it cuts down on your spending. See if you can make the change permanent, but only if you genuinely enjoy working from home.
Managing and Moving Past Debt
In order to truly get good money management skills, you have to get a handle on your debt. In order to do this, you must first assess how much debt you’ve accrued, and what it’s going to take to pay that off. Seeing that total before you can feel daunting, but if you chunk it into more manageable steps, starting can feel invigorating.
It’s a good idea to start by paying off the debt with the highest interest rate first. If you have two debts with similar interest rates, pay off the one with a smaller principal first. This will create a debt snowball that makes it easier and easier to pay down debt.
Another step to consider is refinancing your mortgage. While interest rates remain low, now is a good opportunity to lower your monthly mortgage payments. The decision isn’t right for everyone, but for some individuals, a refinance can save them a few hundred bucks a month that can be funneled into savings or paying off debt.
Be Gentle With Yourself
Know that taking control of your finances is the only true fast track to wealth around, but also know that it’s important to give yourself grace. You can’t be perfect 100% of the time. If Covid taught us anything, it’s that life is unpredictable. Life can throw us a curveball that completely dismantles our budget, and that’s just the nature of our world. Work hard to get back on track financially, but don’t stop there. Work hard to restore your sense of self, your relationships, and your inner peace.
After all, you deserve it.
