At a seemingly glacial pace, Americans are turning their focus away from the health aspect of the COVID-19 crisis and towards their household finances. In doing so, many financial consumers don’t like what they see.
According to a recent study by Resonate, a data marketing company , 80% of survey respondents say they have deeper concerns over their personal finances right now (5,000 Americans were surveyed by the firm.)
In addition, Resonate reports that . . .
- 61% of consumers say they’ve decreased their spending as a result of the COVID-19 situation.
- 34% of people are less likely to remodel or refurbish their homes.
- 32% are less likely to purchase a house.
- 24% are less likely to take out a personal loan.
- 20% are less likely to leverage new financial services at all.
With so many U.S. households taking a closer look at their spending habits during the pandemic, what action steps might Americans take when they finally start chopping away at their expenses?
Financial experts point to these budget-honing strategies – for now and for the long run:
Break your expenses down into easy-to-manage categories. Michael Kothakota, a financial planner based in Durham, N.C., advises budget cutters to first organize their expenses into four separate categories:
- Fixed non-discretionary (necessary) expenses
- Variable non-discretionary expenses (e.g., clothing, etc.)
- Fixed discretionary expenses (e.g., Netflix, (NFLX) - Get Report etc.)
- Variable discretionary expenses (e.g., takeout, etc.)
Your priorities should be housing and food, air conditioner/heating, internet service, phone, healthcare – or what Kothakota calls "basic" necessities.
“Then, cut all of your variable expenses and see where that leaves you,” Kothakota said. “If you’re still short, start cutting fixed discretionary expenses. Hopefully, that leaves you at a place where you will have a budget surplus. If not, you’ll need to figure out ways to cut your variable non-discretionary expenses.
Prioritize needs over wants. When mulling over which expenses to cut, you’ll likely see some household budget items you like but that you can do without.
“These are things like entertainment, new clothes, eating out, and upgraded services like premium cable with all the channels,” said Adam Sanders, director at Successful Release, an organization dedicated to helping disadvantaged Americans with their finances. “These items were great when you purchased them, you likely won't miss them when they're gone. When you're making tough choices 'nice to haves' should go first."
Trim from every category. When slashing expenses, the natural tendency for people to focus on is what category of expenses you can afford to cut?
“The best approach, though, would be to cut all of your household expenses in equal proportion, so you really don’t feel the pinch,” said Freya Kuka, founder of the personal finance blog Collecting Cents. “In other words, don’t cut one whole category out of your budget because you are only going to wind up not following through inevitably. Find ways to trim expenses from every category.”
Get help with mobile apps. There is no shortage of mobile phone apps that can make cutting household expenses easier.
“Ibotta and Trim are neat ways of improving your budget, Kuka said. “Ibotta is great for getting cash back on your expenses while Trim acts as a virtual financial counselor. The Trim app also looks through your spending and alerts you on expenses that can be cut or bills that can be negotiated. It’s essentially a set of virtual eyes that give you a new look at your budget and what can be cut.”
Save the money you’re not spending right now. Americans are home and not going anywhere quite yet, so it’s actually easier to cut household expenses during the lockdown.
“Groceries are expensive but if you’re smart about planning meals, you’re probably not spending as much as usual,” said Pam Krueger, CEO of Wealthramp, an online financial advisory referral service. “That means we’re saving on gas, entertainment, movies, and travel during this pandemic. If you don’t need the money to cover your essential expenses, sock that money away in a money market account that has no fees. This is money you’d normally spend not save, and each month that goes by just allows you to grow your savings.”
Give your savings a partial raincheck. "Consider reducing your contributions to your savings and retirement accounts if you need to have more cash on hand,” said Bobbi Rebell, a personal finance expert at Tally, a personal debt management fin-tech company. “When you’re ready and able to contribute again, you can put more away at that time to make up the difference.”
Get creative with home entertainment expenses – especially subscriptions for streaming services. Consider just picking your most favorite streaming service and cutting out the rest, Rebell said.
Or better yet, make sure you’re at the most affordable subscription plan. “Some plans, like Hulu, will offer you big savings if you are willing to sit through a few ads,” Rebell noted. “Don’t forget that a lot of media can be borrowed from the library, too. With many libraries, you can borrow not just e-books and audiobooks, but also movies and other video content online.”
If you are furloughed or out of work, make these expense-cutting moves. If you’re jobless for the moment, put together an immediate plan, Rebell said.
“Hopefully, you have some emergency savings to lean on,” she noted. “The first thing you have to do is assess how long you can make that last in a worst-case scenario.”
Next, make an inventory of your most basic expenses and start contacting everyone to whom you are financially connected.
“Call your credit card company to see if they can delay your payments by a few months and offer you a lower interest rate,” Rebell added. “Explain your situation to your landlord and ask if they can work with you to delay or lower rent payments. Since you won’t be driving as much, check in with your auto insurance company to see if they can cut your premium. The goal is to cut as much of your expenses as you can. While a bit repetitive, this exercise should help you feel more grounded.”
The Takeaway on Cutting Expenses During the Pandemic
Certainly, these are disturbing times for Americans in lockdown mode and anxious about their health and finances.
That said, this scenario isn’t without opportunities – especially when it comes to saving money.
With all kinds of time to plan, there’s no better time to take a whack at the household budget, and save some cash for sunnier days.