One of the biggest lessons from the health crisis is the need to reevaluate household spending. Many people quickly found themselves in a difficult financial position because the economy took a beating. As the healthcare industry started to be overwhelmed with the patients affected by the virus, stay-at-home orders were given down last year. This was meant to slow down the spread of the virus. But it also affected businesses.
All of a sudden, Americans are all at home trying their best to adapt to all the sudden changes. Children are taking classes at home in front of a computer. Parents are also doing the same thing – working from home. The problem is that not everyone is in a position to offer work from home employment. This left a lot of Americans out of a job because of the health crisis.
As a result, many people were forced to reevaluate household spending in a bid to try and hold off expenses if possible. Without any assurance where and when their next paycheck will be, people are trying to hold onto their money as long as they possibly can. Though it is quite challenging to try and not spend money, there are ways to cut down on it.
Here are a few reasons why you might want to go into your spending and reevaluate it.
To make ends meet
As mentioned earlier, the need to evaluate your spending is rooted in the fact that you suddenly need to make do with so little. All of a sudden, your income takes a massive hit with fewer days for work or worse, being let go. But your expenses will not automatically go down in the process. If you do not act quickly, you can find yourself in the red with so many expenses and not a lot of income to pay for them.
To get back on track with your savings
If you have a target amount for your savings at the start of the year, there is a good chance that you could be way off your goal. All the effects of the health crisis could have taken their toll on your plans and made you lose track of your plan. Choosing to reevaluate household spending can give you the chance to get back to reaching your target amounts for your savings.
To prepare for another emergency
The pandemic swept through the whole world and caught a lot of people off-guard. This was a steep learning curve for most people especially in the way they managed their finances. One of the biggest reasons you could be realigning your household spending is to prepare for future emergencies. This can help you fare better in case another crisis comes up. This is important as CNBC shares that less than 40% of Americans have $1,000 in cash for emergencies.
What to prioritize?
Now that you have a better understanding of why you need to reevaluate household spending, the next question is how to do it. What do you need to do first? Here are a few things you can prioritize.
Trim down expenses for needs
As you reevaluate your expenses, you need to make sure that you are spending mostly on your basic needs. To do this, you need to have a clear idea of what your wants are as opposed to your needs. This is the first step to help you re-organize your expenses. Keep in mind that there will be times when you will feel like your wants and needs are one and the same.
Take your food expenses for example where your needs and wants could intersect. Food is a basic necessity which you need to survive. There is no way around the fact that you need to eat to live. But the food choices you make can determine wants from needs. You need healthy meals at regular intervals but that does not mean you should order take out every single time.
When you reevaluate household spending, you can start to prepare and cook your meals right at home to save on costs. Once you start doing this, your food expenses can go down. Take a look at your subscriptions as well at home. Check which ones you can let go and what you can keep. You get to save money but still get to watch your favorite shows with your family
Strengthen your reserve funds
As mentioned earlier, one of the reasons why you need to reevaluate household spending is to prepare for another emergency. One of the best ways to do just that is to strengthen your reserve funds. This includes your emergency fund as well as your rainy day fund. For some people, these two serve almost the same purpose but for different needs.
Rainy day fund is meant to address smaller needs. When it comes to bigger challenges such as unemployment or a medical expense, your emergency fund is your go-to fund. The reason why some people separate these two is to help preserve their emergency fund from being depleted due to small but regular emergencies. This way, you still have the whole amount when big emergencies happen.
If you are just starting to save for your reserve fund, the goal is to build up the habit with consistency. This is the reason why it makes sense to always start small. Choose an amount you can easily set aside every month. As you get used to it, gradually increase the amount you save each time and you will soon create that habit.
Watch your credit card spending
Part of restructuring the way you spend money is taking a closer look at your credit card spending. ValuePenguin shares that the average credit card debt is over $6,000. This plays a big part in your finances especially if you had to heavily depend on it throughout the health crisis. If you are doing a little better with a steady pay again or a regular side hustle, you need to keep your card expenses
For one, running up your credit card balance will make it more difficult for you to reel in your household spending. This is because you would be more focused on trying to pay back your debt and staying away from high penalties and fees. When you are trying hard to keep up with your card payments, you might fall behind on other priorities.
Find a way to increase your income
One of the reasons you need to reevaluate household spending is to make better use of your income. To help you improve your chances of successfully managing your spending, find a way to increase your income. It is a lot more challenging now with the health crisis but it should not stop you from exploring your options.
One of the ways to do this is with an income-positive hobby. Take a look at what you already love doing and find a way to earn extra money from it. Are you into photography, design, or even baking? You can offer up your skills to people who need them. It can be an online job or by going around businesses in your area.
The need to reevaluate household spending will give you the chance to get back on track and manage your finances better during this health crisis. This will also provide you the opportunity to prepare a lot better the next time something similar happens in the future.