Did You Change Your Spending Habits During COVID?
- Many Americans changed their spending habits during COVID.
- If you spent less, try to maintain good habits and increase your savings.
- If you got into financial trouble during the pandemic, consider debt relief to get a fresh start.
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Most people’s spending habits drastically changed after the novel coronavirus (COVID-19) was officially declared a global pandemic in March 2020. Many of us cancelled travel plans, didn’t shop for work clothes, stopped gym memberships, and put off buying that new car. However, we may have spent more than usual on take-out food, online shopping, entertainment services, home improvements, and maybe even dog food.
But while the COVID-19 crisis has forced some changes, it also presents us with an opportunity to make any positive changes permanent, and to become more proactive with our finances. If you changed your spending habits during the ongoing pandemic, did you do more than stop buying movie tickets? Did you reduce your overall spending and increase your savings?
We’ll take a look at the spending habits emerging in the wake of the global pandemic and explore ways you can take advantage of this difficult time by pursuing long-term goals and improving your financial well-being.
Pandemic spending habits: what’s up, what’s down
Not everyone has had much financial flexibility during the COVID-19 crisis, particularly those who lost their jobs. Still, a recent Bank of America survey of more than 2,500 American adults found a similar shift in spending habits among both employed and unemployed respondents.
Of course, most of this shift is related to stay-at-home orders, working from home, and eschewing nearly all in-person social activities. According to data from August 2020 provided by Mint, also cited by the CNBC article linked above, Americans cut back on the following types of spending (compared to August 2019 spending habits):
Personal care: -4.51%
Business services: -8.17%
Automobiles and transportation: -9.10%
Staying at home, setting up your home office, and making sure your quarantine isn’t too uncomfortable has its own costs. These may include take-out orders from restaurants, pop-up swimming pools, and patio heaters, to give a few examples. Also, many homebound households adopted puppies and kittens, contributing to an overall increase in pet-related spending.
According to Mint, Americans specifically increased their spending in the following categories during the pandemic:
Health and fitness: +5.93%
Food and dining: +6.73%
Understanding the shift in spending habits
Categories and percentages tell us only so much. Have these changes in spending patterns resulted in less—or more—overall spending? Also, how do these changes relate to fluctuations in income caused by job loss or the challenges faced by small businesses, particularly those in the service industry?
Everyone’s situation is unique, but 53% of respondents to a recent Harris Poll survey (for CIT Bank) said they saved more money than usual over the summer. Of course, the summer is when families and individuals tend to spend the most money on airfare, hotels, concerts, theme parks, and other vacation-related activities, which most of us did not do this year.
Also according to the survey, there has not only been a change in spending, but in saving. While the summer savings did increase, 51% of the respondents said they were somewhat likely to keep saving more each month. Now let’s look at how and why increased savings could be part of a change in overall money habits.
Healthy spending habits for life beyond COVID-19
Even if you’re taking this opportunity to reduce overall spending, add to your savings, or pay down debt, life will eventually return to something close to normal. If you’re returning to the office, you’ll probably need to spend money on new work clothes; commuting expenses; and, if you have young children, childcare. You also may have the pent up desire to take a trip when it’s safe to do so.
But, to keep going back to “normal” from turning into going back to the old habits that might not have been good for your long-term financial goals, consider making these changes.
Set a long term budget you can live
Set up a household budget and revise it as conditions change. Your budget provides insight into your income, expenses, and accumulated debt, allowing you to fine-tune your finances. If you haven’t done a budget before, now’s the time. If you already have one but it’s been collecting dust, revising it now can help you adapt to current realities, while planning for the future. Consider the following when working out your budget or revising an existing one:
If you’re spending more on groceries and less on eating out, is this creating value by providing healthier, less expensive meals? When you return to the office, will you still make the time to prepare home-cooked meals regularly?
What are the expenses you can do without once life gets back to normal? Can you do without expensive coffee drinks, your gym membership, or multiple subscription services?
If your overall spending is down, are you applying the extra cash to retirement planning, savings, or debt reduction? If you expect your post-COVID spending to go back up, now may be the time to whittle down your debt or add to your savings.
If retirement is a ways off, what about building the savings in your emergency fund? Even if you’re on solid financial footing, these are uncertain times and it’s important to be prepared.
If you plan on returning to the office, what expenses will go back up and can you limit them? For instance, maybe there are public transit or carpooling options that can help you avoid or limit the costs of fuel, parking, or automobile maintenance. Or maybe your company will shift to a more extensive work from home policy, which may help save money as well.
Overall, start to consider your short-term goals in the context of your long-term plans. Now that you know there are things you actually can live without, would it be worth giving up some day-to-day expenses to put money aside for larger goals like:
Saving for college
Buying a home (or a larger home)
Setting up a more comfortable retirement
If you need to change your financial planning due to challenges brought on by the pandemic, now is the time to re-asses.
The bottom line is that times are tough right now for most people around the world, but challenges often provide opportunities. Taking control of your finances, particularly while certain temptations (tropical vacation, anyone?) remain off limits, can help you thrive now and far into the post-pandemic era.
Take stock of your finances and get expert help if needed
COVID-19 has made us all reexamine our lives to some degree and nearly everyone has experienced a major shift in their spending habits. If you’re struggling to pay down your debts, speak to one of our Certified Debt Consultants. They’ll go over your financial situation with you and help you determine whether Freedom Debt Relief’s debt relief program makes sense in your situation. The consultation is free—and you can get started right here.
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