Creating a budget is certainly not a walk in the park even in the best of times. Budgeting
is an ongoing process and for most people, your budget has the possibility of changing from month to month. When the world is in the middle of a pandemic and you're potentially working with a reduced amount of income, staying within a budget is of the utmost importance. Our advice for budgeting basics
holds true now, but budgeting during a crisis presents challenges that we aren't presented with when things are flowing smoothly. that you will want to pay special attention to as you map out the next several months of your finances.
If you've never set up a budget before, you picked an interesting time to start, but it can still be done, and major kudos to you for recognizing that you NEED to work within a budget. As with most things in life, the more you practice budgeting, the better you’ll get. Take a good hard look at all of the points listed below, note how they've changed since COVID-19 came on the scene, and you'll be able to piece together a new (and hopefully very temporary) "Pandemic Budget."
Let’s begin at the most obvious place: your income. As we all know, your income is going to determine your budget, or in other words, how much money you have to spend. Your income can come from a variety of sources: your main day-to-day job, side jobs, child support, or even rental properties. It includes any source that brings money into your household each month. To start creating your budget, record the total amount of money that you’re making. For many Americans, this figure will differ from your "normal" income amount as you face reduced work hours, fewer clients, furlough, or total job loss. If the latter is the case, be sure to file for unemployment ASAP.
It’s important to take taxes into account, so make sure you’re recording your monetary income post-taxes. Some people refer to this as “take home pay.” If you’re married, you’ll potentially be combining your incomes, so record them on the same budget.
If you are self-employed, budgeting is even more important. Your COVID-19 month-to-month income may be unpredictable
depending on your business. If you're still bringing home money but your business will likely suffer in the upcoming months, use your income figures from the three months that you made the least amount of money over the past 2-3 tax years. Average those three amounts and use that figure for your projected pandemic monthly income.
The next part (that no one likes to think about) is what you spend your money on
. Though expenses have their own categories, you always have regular "offenders" every month like your utilities, mortgage, or car payment. Sometimes utilities can sway a bit from month to month, but in general, they stay consistent.
You can’t forget about the other necessities like groceries, gas, clothing, household necessities, and other miscellaneous items. For your budget, it’s important to take into consideration everything that is going to require money. You may very well need to (and/or be forced to) delete some expenses at this time both in order to cut back on spending and also because you simply won't have access to some things right now.
Your priorities right now are likely going to be slightly different than usual. Make sure the basics are covered before setting money aside for any extras.
- Groceries: Although how you acquire your groceries may look different right now, you have to feed you and your family, so first and foremost, set aside enough money for food. This should come before you worry about other bills. You may have to adjust your food allowance slightly to allow for delivery fees at this time.
- Utilities (Electric, Water): You have to keep the water running and the lights on, so these should take next priority. You might be asking, “isn’t my mortgage more important?” Well, living in a house without lights or water is no fun. The utility company won’t wait to turn your water and electric off if you don’t pay them. Many mortgage companies are giving a tad more leeway than usual during the challenging times we are living in!
- Mortgage or Rent: Although you may get slightly less push back if you're a little late, don’t put your housing payment off entirely unless it’s a dire emergency. Stay on top of it and don’t let it slip to the bottom of the pile.
- Gas/Fuel: Normally, you have to put gas in the car to get to work. If you're now working from home for the next several months, the good news is that the money you would have spend on gas and parking can be spread out to use in other expense categories where needed.
- Clothing: This is another budget category that you can easily cut out right now. Even if you're required to video conference, you only need to look presentable from the chest up, and no one is going to be able to discern whether you've worn the same shirt to every meeting - just hang it up to keep the wrinkles out in between calls!
Under normal circumstances, we'd say that as long as you're meeting your necessary expenses then you can spend some of your income as you wish. A "fun money" fund, if you will. However, as we're in the middle of a pandemic that shows no clear end date, we have to advise you to save anything you have left over - just in case you need to make ends meet for longer than originally planned.
Once you’ve figured out your grand total of expenses, you want to make sure that it doesn’t add up to more than your total income
. If you end with a negative number, you’ll need to go back through and see what unnecessary spending can be cut out. If Income – Expenses = $0, you’ve successfully created your first budget! Some people prefer to have their final number greater than $0, just to provide a little wiggle room. This is naturally preferable so that you can begin to build up a small savings.
As you go through the next few weeks, chances are, you will have to make some edits to your budget. This is more than okay. Remember, creating a functional budget is a tricky process even in the best of times and it takes time to figure out. Don’t be discouraged at the thought of having to create a budget; instead be proud of yourself for taking a step towards managing your money skillfully
, especially in such a challenging time.