There are signs that the U.S. is rebounding from the havoc wreaked by the coronavirus pandemic.
In June, the country added 850,000 jobs, more than expected, and is now 7.13 million below the February 2020 level. The Congressional Budget Office said Thursday that the economy is on track to recover all jobs lost to the pandemic by the middle of 2022, even as the deficit grows.
And, the consumer confidence index released by the Conference Board Tuesday hit 127.3, a 16-month high, showing that Americans are feeling good about the economic recovery.
Still, as Americans open their wallets and return to some of the activities they missed most during the pandemic, caution is warranted. The backdrop is not the same as it was in February 2020, meaning that an old budget may not work for the current prices of goods and services.
That could land some in hot water if they aren't careful.
"It's critically important to revisit your budget and how you want to go about spending your money," said Greg Giardino, a certified financial planner and financial advisor at J.M. Franklin & Company in Tarrytown, New York. "You could easily fall into the trap of overspending especially this summer, and it could eventually develop into bad habits down the road."
Here's what financial experts recommend Americans keep top of mind as they rethink their post-pandemic budgets.
Determine your new normal
After a year of social distancing, holding off on travel and mostly staying home, Americans can return to many activities they missed over the last year and a half.
People should take this opportunity to reassess their spending priorities and make sure that they're spending on the things that are most important to them, or that they missed the most.
This is especially true for people who kept their jobs through the pandemic and were even able to save, meaning they now have some extra cushion in their spending accounts, said Tess Zigo, CFP, a financial advisor at Emerge Wealth Strategies in Lisle, Illinois.
"What do you want that new normal to look like for you?" Zigo said. "Did we miss the frivolous shopping? Did we miss the dining out with friends and family? Did we miss the travel? Usually that's a yes, a heck yes."
Zigo recommends that people sit down and think about their top financial values and where they'd like their money to go. Then, look at their spending and see if it aligns with those values.
In addition, expenses and incomes for many people have changed in the last year, making it critically important to reassess a budget.
"Obviously the pandemic shook up everyone's social life and that's affected everything down to their finances," said Christopher Owens, CFP, a senior advisor associate at Wealthspire Advisors in Potomac, Maryland.
Even those who were harder hit by the pandemic can and should do a similar budgeting exercise, said Giardino. He recommends starting with your take-home pay and allocating 50% to living expenses and utilities, 30% to leisure and travel and 20% to savings, if possible.
He also said that people should always budget the way that works best for them, be that using cash, any number of spending tracking apps or simply using a credit card.
Keep in mind when putting together a post-pandemic budget that prices have risen due to inflation, said Owens.
That includes things such as gasoline, food and other products and services, he said, and this can mean a typical pre-pandemic budget won't necessarily work for right now.
For those who are travelling, Owens recommends doing some extra research on costs such as food or entertainment to make sure you've allocated enough money for the vacation.
"It's important to do that one extra step — how much is it going to be to go out to dinner?" he said. In addition, rising costs could mean that certain projects may have different price tags or even be delayed, said Owens.
For example, something simple like replacing the wooden fence in your yard may take extra time and money due to the recent lumber shortage — costs that might not have been baked into your original budget.
As inflation continues to force prices up, Owens recommends consumers keep a close watch on spending in categories where costs are increasing for the next few months and years, especially if they're actively traveling.
"It's likely to be more volatile in general," he said. "It would be really good to keep your eye on your spending, probably every quarter, just as general household maintenance."
An important part of a budget is to make sure you're allocating enough of your earnings to savings in an emergency fund, according to experts.
"Don't forget about your future self," Zigo said.
During the pandemic, many people had to dip into their emergency savings funds to stay afloat. Now, even if their earnings are steady, they should first rebuild those emergency savings before spending too much or even solely prioritizing paying down debt, according to Giardino.
The rationale of building an emergency cushion first — or simultaneously to paying down debt, if possible — is that if you experience another setback such as your car breaking down or needing to fix your washing machine, you can take care of it without incurring more debt, Giardino said.
"Once you have that safety net, you've earned the right to invest more or pay down more debt," he said.
He recommends breaking down income and expenses, and then multiplying out how much you'd like to have in an emergency cushion. Experts usually recommend three to six months of living costs.
Then, take that number and break it down into monthly amounts that you're able to save, said Giardino, adding that it will likely take months or years to ultimately reach the goal.
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