There is no disputing that the COVID pandemic dramatically affected the personal finances of those living in this beautiful city. Thankfully our economy is gradually recovering and for many steady incomes are returning. Now that we’ve experienced the worst, how do we prepare for a more secure 2022? My suggestion is simple: begin with a monthly budget that includes your immediate necessities, a plan for emergencies, your habitual leisure expenses and your goals for the future.
At first budgeting may seem like a tedious activity you don’t have time for. I hear you, but let me give you some jarring statistics that may grab your attention:
- The lack of financial literacy cost Americans $415 billion in 2020.
(The National Financial Educators Council)
- The average credit card debt in America is $6,270 and California is ranked at 26 in the country with an average of $5,120.
- Around 40% of Americans have less than $300 in savings.
- 20% of Americans don’t save any part of their annual income.
- 1 in 3 Americans prepare a detailed household budget and only 30% prepare a long-term financial plan.
I was only 16 years old when I went off to boarding school. It was my first time living away from home, and my first time having to pay for my own groceries. Long story short, the school year started in September, and I blew my entire year’s budget before Christmas. I knew I could work during my 3-week winter break, but I needed some immediate cash to survive until then. I was too embarrassed to ask my parents for money, so instead I sold a pair of my newest shoes and some clothes to get by. It was at this moment that the value of having a budget became very real.
- Research shows that individuals spend more following a payday.
(Labovitz School of Business & Economics)
My goal with this article is to give you three red flags to look out for so you don’t have to go selling your favorite sneakers and the jacket your rich aunt gifted you to cover the bills because you blew your entire budget after a healthy payday.
- Creating Your Budget but Never Tracking It – RED FLAG!
Way too often we begin the year or month with a glorious budget that outlines our expense predictions. Then we go into the world and swipe away like there’s no tomorrow. Never taking the time to come back and compare how our spending is aligning with the budget we initially created. My suggestion is to find an app that allows you to track your spending. This way at the end of the month you can assess how accurate your budget is. This also allows you to adjust the budget moving into the next month with more confidence and accuracy.
- Not Including the Things You Love To Spend On – RED FLAG!
Your budget doesn’t only exist for bills and paying off debt. You work hard for your money; you should enjoy it as well. Your budget should include the activities that bring you joy. Plan for your weekly date night, getting your nails done, hitting the golf range and or ordering the pizza for your movie night with the gals. Creating predictability and a safe space for your leisure expenses will naturally reduce your anxiety attached to “non-essential” spending habits. Don’t believe the hype, sometimes getting your nails done is very essential, so budget for it.
- Not Budgeting for The Future – RED FLAG!
Live for now, but plan for the future. What does that even mean? Take care of your immediate needs while also preparing for your future goals. One place to start is by building an emergency fund. A good goal to begin with is to start saving for an emergency fund equal to 3 months of your monthly expenses. From there you can begin looking into a realistic plan to pay off your debts, exploring retirement planning options, seeing what you’d need to save to purchase a home, and the list goes on. For the sake of this article, I just want to encourage you to take care of your future self, just as much as you care for your immediate self.
Now that you know the reg flags, go forth and conquer 2022 with the most amazing budget plan you’ve ever created. Tracking it will hold you accountable and reduce your anxiety about spending. Making space for the things you love will give you the opportunity to look forward to spending money you know you have. Planning for the long-term will allow you to enjoy the present with the confidence of walking into a bright future.
The National Financial Educators Council: https://www.financialeducatorscouncil.org/financial-illiteracy-costs/
Federal Reserve: https://www.valuepenguin.com/average-credit-card-debt
GOBankings Survey: https://www.gobankingrates.com/banking/savings-account/exclusive-covid-report-40-americans-less-300-savings/#:~:text=A%20new%20GOBankingRates%20survey%20 finds,households’%20financial%20well%2Dbeing
Association For Consumer Research: https://www.acrwebsite.org/volumes/v48/acr_vol48_2662167.pdf