Budgeting Basics to Keep Money Safe During COVID-19

Financial advisors sit at a table and discuss how to budget during the COVID-19 pandemic.

When the economy is unpredictable, getting back to the basics can provide a bit of stability during a thoroughly unstable time. Although most people already understand what budgeting basics are—and may even already be following some, if not all, of them—now is the perfect time to check in on how the financial system you’ve set up for yourself is working, particularly during such an unprecedented time.

The following are a number of budgeting basics that—when followed properly—should help most people create a financial system that keeps them as safe as possible during economic downturns.

1. Understand Your Income

You can’t begin to create a budget without understanding how much you bring in to spend each month. The past few months aside, this should be fairly easy. Remember that your overall salary often doesn’t account for taxes and additional money that might come out for things like health insurance or retirement. Your pay stubs or monthly checking account statements can help you get a better view of the full picture.

What Might Be Different Now

With the economy the way it’s been over the past few months, many companies have had to lay off or furlough employees for the foreseeable future. If you’ve been impacted in this way, it’s important to understand what you still have access to (furloughed employees, for example, might still make a portion of their income, and they might still have access to health insurance) so that you can understand the steps you might need to take in the next few months to make necessary changes to your budget to adjust. Keep an eye out on what’s happening at the governmental level, too. Although another wave of stimulus cash may be coming, if you already received a stimulus check and haven’t needed to spend it yet, it’s a good idea to stick it in savings for now.

2. Determine Your Fixed Expenses

The beginning of every good budget starts with understanding how much money you’re bringing in (your income) versus how much you have going out (your expenses). When determining your expenses, it helps to start with the fixed items, or, those you don’t have much control over. Items like rent, utilities and groceries (for the most part), a car payment, health and car insurance, student loan payments and your cell phone bill should be included on this list. If you ascribe to the oft-touted 50/20/30 rule, then 50% of your take-home pay should be going towards your fixed priority expenses or essentials.

What Might Be Different Now

The safer-at-home mandates in many states throughout the country have meant that lately, more of us have been staying home. Although the majority of your fixed expenses won’t be impacted by this, some of them—like your utilities and groceries—might. If your expenses in any of your fixed areas have changed over the past month or two, try comparing them to what you spent at the beginning of the year to get an idea for how much more you’re spending right now and how you might need to adjust in other areas to compensate. If you’ve lost your job and are having trouble paying your rent, mortgage or student loans, many companies are working with their customers to help set up ways for them to work around those bills for a certain amount of time.

3. Take a Look at Your Variable Expenses

Unlike your fixed expenses, variable expenses are those that fluctuate on a monthly bases. Things like gas and entertainment spending can go up and down in a given month. If you take a look at what you’ve spent over the past six months (perhaps excluding the past two months, when most of us started staying at home more), you should be able to get a good idea of the average amount of money you spend per month on your variable expenses. Some of these things—like entertainment—can be buckets where you consider decreasing your spending in the future, should the need arise.

What Might Be Different Now

Your variable expenses may have seen quite a few changes over the past few months. Perhaps you've added to your at-home entertainment services—with a Netflix and/or Hulu subscription, for example—and are driving less and spending less at places like movies or dining out. By taking a closer look at your spending over the last two months, you should be able to determine if you’re saving enough in certain areas (like gas and going out with friends) to cover what you might be spending more on (like that Disney+ subscription to keep the kids—and you—sane) during this particular time period.

4. Make Room for Savings

How it works: Your up-front expenses are an integral part of creating a budget, but so are the additional expenses that come with creating future financial goals for yourself. Putting money in a retirement account, creating an emergency savings account with three to six months’ worth of expenses in it and paying down debt (like credit cards) are all a big part of that. Again, if you ascribe to the 50/20/30 rule, then 20% of your take-home pay should be going towards savings, including things like your retirement account and your emergency fund.

What Might Be Different Now

Depending on your financial situation, you may be more likely to draw from your emergency savings right now than you are to add to it, and that’s okay. That’s what it’s there for. When it comes to retirement planning, if it’s possible to continue contributing as you were before the COVID-19 pandemic hit, your future portfolio will thank you. Staying in the market and contributing normally is the best way to ensure you make the most of market upswings when they occur.

Although the basic tenants of budgeting tend to remain the same, it’s important to understand how certain factors—like a worldwide pandemic—might cause us to reconsider how we spend and save. It’s fine—and necessary—to make adjustments to your budget when you need to. As long as you can make it a goal to get back to the basic tenants of juggling your spending and saving in a savvy way as soon as possible, you shouldn’t feel guilty about needing to make some necessary changes here and there along the way. For more help putting together a budget based on your specific needs, contact a Fifth Third Bank expert today.

The views expressed by the author are not necessarily those of Fifth Third Bank, National Association, and are solely the opinions of the author. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank, National Association or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever. Deposit and credit products provided by Fifth Third Bank, Member FDIC.