Understatement of the year: coronavirus has changed our lives. We have our groceries delivered. Happy hour is held over Zoom. Mundane errands are now exciting opportunities to leave the house. As inherently social beings, the swift transition into life at home was jarring, to say the least. Staying at home has significantly affected how and where we spend our money.
Discretionary v Necessary Expenses
According to the Bureau of Economic Analysis, consumer spending dropped 7.5 percent in March1. To put it in perspective, that’s $1,127.3 billion dollars! A contributing factor to this drop in spending is the forced abandonment of many discretionary expenses. Discretionary expenses are costs that households can get by without. For example, the cost of a weekly manicure, once considered necessary, has been eliminated due to stay at home orders and the closure of businesses.
A Positive of the Pandemic?
Although one could list the many negatives of this pandemic, there’s also opportunity to reevaluate your financial situation. Being forced to give up discretionary expenses such as manicures, travel, spa treatments, movie tickets, or drinks at the bar highlights that these services are not needs but wants.
Lifestyle Creep
Ever heard of lifestyle creep? It’s a common phenomenon that occurs as our income increases. You may have noticed that even though you received a raise, you’re still barely making ends meet. That’s because as we make more money, we also tend to spend more on discretionary expenses. One of the hallmarks of lifestyle creep is “a change in thinking and behavior that sees spending on nonessential items as a right rather than a choice”2. Have you ever justified an expense because you’ve had a long week at work, and you deserve it? The self-care movement has also contributed to the spending attitude of “I deserve it”. While taking care of your physical and mental health is important, you could be unknowingly sabotaging your future self.
Saving as Self-Care
Saving is a form of self-care; having an emergency fund when an unexpected expense arises or being able to retire comfortably (or even early!) can increase your quality of life. Think of saving as a gift to your future self rather than a burden.
Take Advantage of the Virus
You can decide which expenses to take on again once life has returned to a more normal state. Taking some of the funds you may have spent on personal care or travel and saving it instead, is a great first step to improving your financial situation. Consider upping your contributions to your retirement account or if you don’t have one yet, opening your first investment account. Commit to saving more now - before you’re bombarded with temptation.
What will you choose to do?
1. https://www.bea.gov/news/2020/personal-income-and-outlays-march-2020
2.https://www.investopedia.com/terms/l/lifestyle-creep.asp
This is meant for educational purposes only. It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions. (06/20)