American consumers are feeling less pressure to keep up with appearances and plan to spend less on going out after the pandemic, according to a new report by Credit Karma. If karma is a mirror, what reflects back is refocused priorities and a shift into stocking up on “needs” in lieu of “wants.”
Its recent survey in June, conducted by Qualtrics, found that nearly half of its 1,043 adult respondents are “redefining” necessities — or taking a closer look at their budgeting. Forty-six percent of Americans are spending more than 50 percent of their monthly income on needs, such as groceries, childcare or housing, and 41 percent said they are spending less than 15 percent of their monthly income on wants, such as entertainment, hobbies and shopping.
But 45 percent of respondents also said they are putting less than 15 percent of their monthly income into savings, changing the dynamics of the traditional “50/30/20” budgeting guideline.
“With so many Americans allocating less than 15 percent of their monthly income to both the wants and savings categories, budgets might look a little different than the 50/30/20 standard,” authors of the report said.
“Out of necessity, you might be budgeting 60 percent or more of your after-tax pay to necessities, while your wants and savings get less. In extreme cases, your budget might look more like 80/10/10 — where 80 percent of your monthly income goes toward needs, 10 percent goes toward wants and 10 percent goes into your savings,” they added.
So, with that said: What does strategic budgeting look like during the pandemic?
Credit Karma offered a three-tiered approach to regaining financial footing, inclusive of tracking spending to keep a budget. “Seeing your spending and savings in writing can help you nail down your finances. Start with a budget breakdown that works for you right now, like 80/10/10 (or some version of it), and then categorize your spending and savings into each of these large buckets — or you could break your spending down even further. The most important thing is to begin tracking where your money is going,” authors of the report explained.
And there’s no better time than the present to prioritize saving for emergencies. “We generally recommend saving up to 20 percent of your monthly income for the future — though it might be hard to ration out that much to savings right now. It’s still important to plan ahead so that you can help cover emergency expenses with your savings.”
Lastly, trimming the fat — or finding ways to cut your monthly expenses — is a surefire way to create or add to a nest egg.
“Think about what you’re not really using right now, like a gym membership or satellite radio subscription for your car and take the steps to pause or cancel these subscriptions. If you’ve already made these cuts, look into negotiating your cell phone contract, adjusting your auto insurance policy or talking to your landlord about lowering your rent — even if just temporarily.”
Credit Karma emphasized that we’re not alone — and “many others are also figuring out how to navigate the current situation.” “[Currently], you may be spending more on bills and saving less than you’d like — and that’s OK. Keep in mind that the current situation is temporary, and financial progress isn’t linear. It may take some time. Right now, prioritize keeping yourself and your family healthy and safe.”
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