6 Ways to Help Families Control Household Spending During COVID-19
The pandemic has affected families in different ways, and for some, the financial impact has been significant. Individuals have lost their jobs, had their hours cut, or had to take leave to care for children or vulnerable family members.
Many have already suffered financially, and many more are worried about the uncertainty that remains ahead. While they have managed to stay afloat, they worry about job security and business cash flow in the face of potential further shutdowns or if subsidies they rely on are not renewed.
Families and individuals who are worried can take steps to improve their financial wealth by paying down debt, saving more towards their longer-term goals, and by owning assets that appreciate. In this blog, we focus on the importance of managing cash flow to help improve wealth.
To improve your wealth, you need to know where it’s going.
While gross income is important, understanding after-tax income is more relevant: after-tax income is what is spent or saved. Doing a granular budget is certainly one of the most effective ways to get a handle on spending. However, most individuals tend to underestimate their spending. There is a simpler and more accurate way to see how much you have spent. Take your gross income, subtract taxes, how much you saved and how much you paid down towards debt. The rest is spent. Household spending is often the greatest lever to improve financial health.
If you cannot change your gross family income, spending less is the best way to influence how much you have left to save or pay down debt.
We have created a checklist of ways that can help families control household spending:
- 1. Know where you are spending today. Doing a granular budget and looking at actual spending over a few months can be very helpful in understanding where money is being spent. This is particularly important in pandemic times where habits and spending have shifted.
- 2. Look for ways to reduce current expenses. For example, reviewing what you currently spend on your cell phone, TV and internet, can present opportunities to save.
- 3. Look at monthly subscriptions such as Netflix, Disney+, or Amazon Prime. The amount that most households spend on subscriptions has unsurprisingly increased during the pandemic.
- 4. Define and commit to your budget. It is helpful to compartmentalize spending in buckets – such as: groceries, discretionary, online shopping, and home office costs.
- 5. Share the budget with your family and get their buy-in. In doing this, not only will it help in making sure everyone is on the same page but also can help create accountability.
- 6. Review regularly. Like all good goals, reviewing and assessing on a regular basis helps create good habits. It is also helpful to celebrate budgeting successes while also focusing on what might not be working as well.
While some people may have the ability to increase their incomes or reduce their taxes, most will find that controlling expenses and having a budget will have the greatest impact on making sure that they are getting ahead financially and building their wealth.
At Tall Oak Private Wealth, we help clients plan and grow their wealth by working with them on their unique situation. We look forward to continuing conversations as we adjust to these new times.
Your Tall Oak Private Wealth Team (Written by Mehendi Kamani)
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This material is provided for general information and is subject to change without notice. Although every effort has been made to compile this material from reliable sources; no warranty can be made as to its accuracy or completeness, and we assume no responsibility for any reliance upon it. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances.