The world has changed: Your budget should, too.

By Lauren Phillips
June 04, 2020

You may have had a budget that worked for you for years; you might have never had a budget or learned how to budget money. For people in all these categories, coronavirus and the corresponding economic crisis and enormous spike in unemployment has probably changed everything.

If you've lost your job through a furlough or layoff or you or your household has lost income in the last few months, it's time to go into what Kimberly Palmer, a personal finance expert at NerdWallet, calls crisis mode.

"When you lose your income, you go into crisis mode, and it's all about financial survival until you can earn income again," she says. "Many of the normal personal finance rules don't apply. It's OK to do things like use more of your credit limit on your credit cards than normal or to temporarily suspend contributions to things like 529 college savings accounts or 401k retirement savings accounts."

The most important thing is to avoid going into debt—or into substantial high-interest debt—to limit the long-term financial damage, says Brian Walsh, a certified financial planner at SoFi. This is where an adjusted budget comes in.

If you've lost all income completely, Brittney Castro, CFP at Mint, says to create a cash flow plan. "Start by figuring out how much you need to cover your monthly expenses," she says. "Make a list of all your expenses and cut any that you can live without. Then, call your service providers (e.g., TV subscriptions, cell phone company, etc.) and lenders to see what sort of options you have to reduce, defer, or cancel your services or payments for the interim."

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Cancel any nonessential subscriptions, memberships, and services. Cut out any nonessential spending and assess how much money you have tucked away in savings or an emergency fund and how much you expect to receive in unemployment benefits, if and when you qualify. If it's not enough to cover your expenses for the next few months—or until you think you'll be able to get another job—consider other sources of money such as personal loans, credit cards, and 401k withdrawals. Just remember that borrowing money (either from lenders or against your future, which is what happens when you take money from your 401k or retirement savings) is a last-ditch option.

If you've only lost some income or are seeking to adjust your spending to save more during these uncertain times, expect your budget to look different than it used to.

"If COVID is what's motivating you to budget now, it might be a little different," says Lindsay Sacknoff, head of consumer deposits, products, and payments at TD Bank.

You likely feel the urge to cut out all nonessential spending and save as much as possible, but Sacknoff encourages honesty in budgeting here. If you aren't much of a home cook—and never have been—don't commit to something unsustainable, like cooking all your meals at home. Making unrealistic commitments in your budgeting only sets you up for failure, which can cause feelings of guilt and derail your whole budgeting plan. Be honest with yourself and leave room in your budget for takeout, for example, by reducing your spending in other categories.

"Look to balance what you'll use and get utility out of," Sacknoff says. "Look at what gives you the best value."

Think about what's reasonable to spend on nonessential categories that nonetheless bring you joy and satisfaction. Calculate how much you absolutely must spend on food, essential clothes, housing, and other nonnegotiable expenses and figure out how much you can stand to spend on other categories that are of value to you. Even if you've followed the 50/30/20 method or a similar budgeting system, you may need to make adjustments.

"As we navigate the coronavirus pandemic, 30 percent allocated toward your wants may not be realistic for many people," says Ken Lin, founder and CEO of Credit Karma. "Now more than ever, Americans need to be extremely diligent with their money, prioritizing the things that matter most, like rent and other necessities. Right now, it may make more sense to put more toward your needs and then savings, versus any wants."

That's because the future is uncertain. "The lower people can get their spending right now, the more flexibility they have," Walsh says. Saving money now—if you still can—can help you later, particularly if layoffs are probable in your industry. Walsh says people should plan to spend less than usual in the coming months and be realistic about future budgets: You may have even less wiggle room in your budget in the coming months, which means every dollar you can save now will be helpful later. (A tiny emergency fund is a better financial cushion than nothing.)

"Before the coronavirus pandemic, you may have budgeted a couple weeks or a month in advance," Lin says. "Now, given the uncertainty, you should map out your projected expenses over the coming three, six, and nine months." Take into account spending on gifts for birthdays and holidays, tax payments, expected repairs, and other necessary expenditures, and do what you can to prepare for them now.

To make that doable, Sacknoff suggests reallocating previous expenses. With so much closed during the crisis, many common expenses are naturally eliminated. Think about how much you once spent on childcare, gym or workout studio memberships, live entertainment, travel, and other categories that are no longer open. If your income hasn't yet shifted, it should be easy to put the money you once spent on these activities directly into savings.

Once you have your fresh coronavirus budget, expect to revisit it often. "It's not going to be a set it and forget it," Sacknoff says. Reexamine your pared-down budget every four to six weeks, or whenever your bills typically arrive. Things changed so quickly in the first weeks of the coronavirus crisis in the U.S.; expect them to continue to shift, and adjust your budget accordingly.