Hey, Big Spender: How to Avoid the Post-Pandemic Crazies
Live it up a little, but follow these rules to avoid budget trouble
With spending limited to what could be ordered online, American households managed to spend less during the heart of the pandemic, and shovel more into savings.
That’s seemingly gone the way of the no-knead sourdough bread craze.
Spending on wants
In an April survey by the Federal Reserve Bank of New York, consumers said they expected their spending on non-essential stuff would increase by a median of 4.1% in the next 12 months. That’s up from an intended 1.6% increase in December 2020, as vaccination was just starting, and the highest reading since the survey started back in 2013.
The New York Fed reported that the probability of spending on furniture, home appliances, home repairs and vacations over the next four months reached all-time highs in the April survey.
How to spend smarter
OK, after 16+ months of being in relative captivity, getting out and doing stuff, and buying stuff is to be expected. But letting your spending pendulum swing to the extreme of anything-goes can mean trading off a quick high of in-the-moment pleasure, for a long-term hangover of putting your financial security at risk.
Some ways to curb your spending enthusiasm so it better balances getting to enjoy yourself now, without making a mess of your future:
Bucket. Now that spending is easier, it’s smart to consider building your own guardrails for non-essential outlays. Even if you loathe line-item budgeting, or software, commit to divvying up your disposable income into at least four buckets: essential spending, emergency savings (assuming you’re still light on this goal), long-term retirement savings and yes, finally, non-essential spending. How much goes into each bucket is your call and your responsibility. By pre-committing to all four, you help yourself avoid the short-term lure of overspending on wants.
Curb your credit card enthusiasm. One of the reasons credit card debt fell during the pandemic is that banks were not in the mood to offer up new cards. In the spring of 2020, around 70% of banks said they were making it harder to get a credit card. That’s no longer a problem. New applications for credit cards are nearing the pace from before the pandemic, and issuers are rejecting far fewer: Just 16% of applications were rejected in June, compared to more than one in four back in February.
Having access to a credit card to cover essential spending and for unexpected emergency bills (medical coinsurance, for example) is one thing, but taking out a new credit card or asking for a higher credit limit (also on the rise lately) to pay for wants is no less financially dangerous than it was pre-pandemic. And it may become even more costly. The average interest rate charged on unpaid credit card balances fell during the pandemic, but in the most recent tally (May), the average rate had ticked higher, to 16.3%.
If it’s a need, how big a need? Whether it’s buying a car or a home, or refreshing your wardrobe, getting in the habit of spending the least amount possible to satisfy the need is key. For example, skipping the extra bedroom when buying a home can add up to hundreds of thousands more in your retirement accounts decades from now.
The best car move right now is to not buy one. A combination of pandemic issues has created an insane situation where even the smart car move of buying a used car is now way too expensive. If you can wait six months or a year for the auto market to calm down (it’s a supply problem), buying a used car remains one of the smarter long-term financial plans.