Use a crisis to build helpful money habits
As millennials, we’ve learned about money the hard way. From the Great Recession to stratospheric student loan debt to a pandemic, there’s been no shortage of life giving us lemons.
While the long-term economic effects of the pandemic are yet to be fully realized, you may have noticed one positive trend in the short term: For once, your debt may have dropped.
Credit card balances fell by $76 billion April through June, the steepest decline on record, according to an analysis by the Federal Reserve Bank of New York. Research by Nerd-Wallet backed that up, finding that credit card balances carried from one month to the next dropped 9.15%, or more than $600 per household with this type of debt. Overall household debt shrank by nearly $1,000 among households carrying any type of debt in the same period.
If stimulus checks, paused student loan payments and sticking close to home have helped you cut down debt, here’s how to keep that momentum going.
It all comes down to the budget
The idea of making a budget may have seemed too time-consuming or stressful in pre-pandemic times. But if you’ve taken that first step of looking at your spending and saving patterns lately — as many of us have out of sheer necessity — you’re already on your way toward building a budget.
“Take what you’ve done over the last few months and put it in a spreadsheet,” says Luke Lloyd, a wealth advisor and investment strategist at Strategic Wealth Partners in Cleveland.
You’ve probably focused on essential needs and sacrificed wants, or come up with creative solutions to have fun instead. Lloyd says the pandemic has made it clear that “we don’t always have to go out and spend all this money to entertain ourselves.”
The 50/30/20 budget is an easy guiding principle to follow. It buckets your take-home pay into needs, wants, and savings plus debt repayment. Use the moneysaving techniques you’ve practiced to make this budget work — maybe you’re saving on restaurant meals because you’re cooking at home, or perhaps you’ve been ordering a lot of takeout but saving on gas, movie tickets or a gym membership. Take that extra money and apply it toward the needs or savings and debt buckets instead.