By Janet Álvarez - CNBC + Acorns
If 2020 changed the way you think about money, you're not alone:
Millions of citizens in the United States faced unexpected job losses
, business closures, or other dramatic changes in the way they live, work and spend due to the pandemic.
Some of these changes, such as remote working, online shopping and food delivery, can become collective spending habits, causing a permanent change in our budgets.
Thus,
the beginning of 2021 is an opportune time to reconsider your budget and think about how it should evolve
as the pandemic subsides over the next year.
We spoke with two experts, Derek Dobin, Prudential's financial advisor, and Lauren Maxwell, assistant vice president of Trustco Bank, to discuss the steps we should take to prepare our finances for the post-COVID-19 world.
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Tips on your budget
“To create a post-COVID budget for your household, the first step is to identify your total monthly income.
Many households experienced a fluctuation in their monthly income during the pandemic
, due to stimulus payments or job layoffs, ”says Maxwell.
As the next step in creating a new budget, Maxwell advises taking into account all your essential expenses.
"For most households that includes rent or mortgage payments, insurance, groceries, utilities, transportation, savings and debt payments, as well as childcare," he adds.
If you have found meeting a budget difficult in the past, Dobin recommends using free apps like Mint, YouNeedaBudget, or others that can help you stay in control of your spending.
"These become more substantial with each passing month, and
that makes your budget increasingly complex,
" says Dobin.
Maxwell advises readers to remember some key budget rules that they might overlook:
• Food price inflation has risen steadily during the pandemic.
Grocery bills
are anticipated to
remain high
and this is something to consider when drawing up your budget.
• Do you have federal student loans that have been deferred due to COVID-19?
If so, now is a
good time to put that expense back in your budget and start making your monthly payments
to reduce principal without accruing interest.
• Another area to consider is childcare.
Many households experienced an influx in cash flow due to the temporary closure of child care programs during the pandemic.
However, due to increased operating costs driven by COVID-19 and reduced capacity, some child care programs may have to close their doors permanently.
If this happens, it can create a shortage of available places for families and cause prices to increase.
Households should analyze the cost benefit of child care after a pandemic and look for alternative options, if available.
• If you have adjusted your retirement savings to free up monthly cash flow or have eliminated your retirement savings entirely, this is a vital item to include in your post-COVID-19 budget.
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Tips to save
Both Dobin and Maxwell agree that a post-pandemic budget should take into account savings opportunities, especially if you've used your emergency savings or depleted other resources during the pandemic.
Dobin advises taking a look at your entertainment budget, where many Americans can extend their savings after the pandemic.
“The economics of television, internet, and entertainment have changed, and that may persist after COVID-19.
Now is the time to call and ask for discounts ”, he recommends.
If you enjoy working remotely, and that saves you money on transportation costs or allows you to live somewhere cheaper, Dobin recommends trying to make those conditions permanent: “If you can work remotely or move to a more profitable location, try to save those savings and ask your boss to make remote work permanent. "
Dobin and Maxwell also agree that starting, or restarting, your emergency savings is a critical priority.
Experts agree that rebuilding your emergency fund should come first
, followed by contributions to your 401k or retirement plan.
"In 2021, if you've spent your emergency fund, you need to start rebuilding it," says Dobin.
“Emergency savings must remain a priority for post-COVID-19 family budgets.
If it seems difficult to continue adding to your emergency fund, take advantage of the savings programs your bank may offer, ”says Maxwell.
And he adds that “if your employer offers retirement programs like an IRA, 401 (k) or 403 (b) Plan, take advantage of the program and allocate a percentage of your income that your budget can support.
If your employer offers a contribution to your 401 (k), they will add a certain amount to your 401 (k) based on the amount you contribute annually.
Not taking advantage of an employer's contribution is equivalent to leaving 'free money' on the table ”.
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Recommendations on debt management
The final step in budgeting is assessing your debt burden and formulating a plan to address it, Dobin says.
"Set goals," suggests Dobin.
“
Try to pay off debt with the highest interest rate first, like credit cards
.
Negotiate lower interest rates, if possible, to speed up payment and lower your monthly bill.
And if you have good credit, look for the best cash-back rewards cards or consider a balance transfer to a 0% APR card to get the most out of your card, ”says the expert.
And Maxwell suggests that if you haven't already done so, review your mortgage refinancing because that could save you money.
That move could free up extra cash to use for savings or debt payment goals.
“With interest rates at record lows and the Federal Reserve's expectation that they will remain as they are for a period of time, households should consider refinancing their mortgage to achieve a lower monthly payment.
This could lead to more disposable income for your household, which will go towards emergency savings or debt repayment, ”Maxwell advises.
Finally, both Dobin and Maxwell point out that each family's situation is unique but, as 2021 begins with hope and promise, the opportunity to rethink personal finances could create new economic stability for many.