In conversations with clients, colleagues and friends, there’s one habit many seem to struggle with: spending money. No matter how much we earn, the amount we spend often impacts more of a person’s future financial success than their income, savings or investment returns. Try as we might, cutting back our spending is never easy. Until now.
The current pandemic has impacted all of us. For more than 40 million Americans, it’s meant the loss of a job and a steady income. For those fortunate enough to have their health and their jobs, nearly everyone I’ve spoken with is spending much less money than they were three months ago.
We know there eventually will be pent-up demand for travel, dining out and other activities. My family is already dreaming about the vacations we will take. However, this forced spending reduction may be a once-in-a-lifetime opportunity to re-evaluate our spending habits, invest more and reshuffle the financial deck. The question now is: Can we sustain a modified spending level once we solve the COVID-19 puzzle and return to a more normal life?
Here are some recommendations on how to make at least some of these spending cuts permanent and bolster your finances:
Determine a New Monthly Budget
Many people are likely saving $200 month or more from less car maintenance, lower gasoline prices, no parking fees or dry cleaning and less dining out at restaurants. Even eliminating our daily visit to Starbucks or another drive-through restaurant can save $5-$10 daily.
Since working from home the past few months, I’ve been sweeping over to savings the money I would have ordinarily spent on gas to drive to my office and buying lunch out a few times a week. You may also consider paying down your mortgage or other debts with this surplus each month. If you are currently retired and spending less, this is a great opportunity to build up your cash reserves.
Take a few minutes to determine how much less you are spending now, and if there are opportunities to convert any short-term spending reductions into long-term gains. Even a $100 monthly reduction in expenses means an extra $1,200 in your bank each year.
Sponsored Content
Use a Short-Term Cash Surplus Wisely
Even if some savings are temporary, it’s the perfect time to sweep extra cash over to a savings account, fund a Health Savings Account, an Individual Retirement Account (IRA), Roth IRA or a 529 college education savings plan for your children or grandchildren. It can also be used to contribute to food banks and other charitable organizations to meet the needs of those most directly impacted by coronavirus.
On the other hand, you can start some positive habits now and carry them into the future, such as increasing the contribution rate into your 401(k) plan. For example, someone earning $100,000 annually who has been contributing 8% of their income to a 401(k) may be able to bump up that contribution to 10%. The extra $2,000 annual contribution, growing over several years, will likely provide you with a significant increase in your retirement account.
Sponsored Content
Turn That Canceled Vacation into an Investment
If you have a pile of cash tucked away for a major trip that’s been canceled, consider the benefits of investing that money. For example, if a couple had planned to spend $5,000 or more on a romantic getaway to Europe or a family trip to a theme park, they may now be choosing a less costly vacation that makes it easier to adhere to health and safety guidelines.
Others may be canceling these trips and staying at home until new infections in their state or county continue to recede. If you have money that you now won’t be spending for at least three years, consider investing it in a balanced portfolio in a brokerage account. If you think you’ll need the money sooner, consider opening a high-yield savings account with an online bank.
Sponsored Content
Think Twice about a New Car
Some people who had planned to buy a new car may be re-evaluating the need to drive as much once the economy recovers. If working from home is now a permanent option for one or more persons in the household, it may make more sense to buy a used car and save thousands of dollars, or hold off on a purchase for a few more years. Less mileage on your car now means it could run a lot longer.
Sponsored Content
Keep Those Good Habits Going
Everyone needs to save for something. Now we all have the opportunity to create a “new normal” and form new spending and savings habits. A few thoughtful moves now can make a big impact for years to come. Take advantage of the forced broken habits and decide for yourself which habits you’ll take with you into the future.
Written by Josh Monroe, a CERTIFIED FINANCIAL PLANNER™ practitioner and a Chartered Financial Consultant designee who listens actively and plans thoughtfully to help clients achieve their goals. He joined the Brightworth team in 2019 as a Financial Planner. Before Brightworth, Josh spent eight years at a leading insurance and investment firm in a variety of roles, including compliance and supervision. Josh is passionate about financial planning and making complex concepts easy to understand.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
Sponsored Content
-
The US Postal Service Does More Than Deliver Mail: Six Ways It Helps Older AdultsWith talk of cuts to the USPS swirling, here are the ways it provides vital services to the nation’s older adults.
-
Stock Market Today: Stocks Seesaw After Big Market RallyThe latest consumer confidence data showed sentiment remains low.
-
Would You Benefit From Investing in Cryptocurrency?Understanding the complexity of adding digital currency to your investments is critical, especially since drastic price changes can happen very quickly.
-
Why Company Stock May Be Riskier Than Employees RealizeStock compensation has its perks, but employees must be realistic (and unemotional) about their investments' prospects. Sometimes strategic sales are smart.
-
Can You Be Fired for Going to Work When You're Contagious?What's an employer to do when an employee shows up at the office with a cold or the flu and spreads germs to co-workers?
-
Social Security Fairness Act: Five Financial Planning Issues to RevisitMore money as a public-sector retiree is great, but there could be unintended consequences with taxes, Medicare and more if you're not careful.
-
Social Security Warning: Five Missteps Too Many Women MakeClaiming Social Security is complicated, and for women the stakes are high. What you don't know can cost you, so make sure you do know these five things.
-
To Buck the Third-Generation Curse, Focus on the Family StoryThe key is to motivate the next generations to contribute to the family business in a productive way. You can look to Lawrence Welk's family as a prime example.
-
How Roth Accounts Can Ease Your Tax Burden in RetirementStrategic Roth IRA conversions can set you up for tax-free income in retirement and a tax-free inheritance for the people you love.
-
Are You a High Earner But Still Broke? Five Fixes for ThatIf you're a HENRY (a higher earner, not rich yet) but feel like you still live paycheck to paycheck, there are steps you can take to get control of your financial future.
