skip to Main Content

COVID Killed My Budget–Now What?

If the pandemic has derailed your budget and drained your savings, don’t get too discouraged. Millions are in the same boat. Before you let your financial situation overwhelm you, realize this is a temporary setback brought about by unusual circumstances you had very little control of.

You can get your savings back on track. Here are some suggestions and tips—and a few mental tricks—that will help you set a new, realistic budget and re-build savings.

To get started, organize your spending into three categories:

  1. Bills. This includes monthly bills that are non-negotiable, high-priority expenses like your mortgage or rent, car payments, child care, phone bill, utilities, insurance, etc.
  2. Current expenses. This is the spending that you plan to do within the week. The costs vary, but include things like groceries, gas and other miscellaneous expenses.
  3. Future expenses. This is cash you set aside for later use. It includes any money that’s left over after covering the costs of #1 and #2 above. This category might include retirement savings or an emergency fund.

Determine average monthly costs
Once you know what bills/expenses you have each month, you’ll need to figure out how much you’re spending on each. You can look up your spending on bank/credit union and credit card statements.

While the task may seem daunting, it’s not that difficult, just time-consuming at first. There are budgeting software programs and apps that you can use to get started, or you can create your own spreadsheet. You can also download templates online through programs like Google Sheets or Microsoft Excel. A pencil and paper also works; it’s important to find a system that fits you.

Fixed expenses such as mortgage and car payments are a good place to start since they are easier to calculate and generally the same month-to-month. For these categories where spending fluctuates, such as utilities, gas and groceries, determine the average monthly cost by looking at the past three months. Add up what you spent on that category over the past three months and divide by three. For example, if your utilities bill was $150 in January, $125 in February and $100 in March, divide the total ($375) by three to get your average monthly utilities cost ($125).

Create your budget
Once you know what your expenses are, and how much you’re spending on average for each category, your next step is to determine how much income you’re bringing in.

Calculate your net income, which is the income you bring home after taxes and automatic deductions for things like health insurance, 401(k) plan and child support. Do not use your gross income; this is a common misstep in budgeting and will tank your budget fast!

If you receive a regular paycheck through your employer, regardless if you’re part-time or full-time, the amount listed is likely your net income.

If you freelance, are self-employed or simply don’t receive a regular paycheck; you’ll need to subtract estimated taxes from your income amount. Visit to get the current self-employment tax rate. Estimate how much in taxes you’re required to pay each year (you can look at your last year’s tax return to get a ballpark number), then divide by 12 to get a monthly estimate.

Make adjustments
The last step in creating a budget is to compare your net income to your monthly expenses. If your expenses are higher than your income, you’ll need to make some adjustments—either by decreasing your expenses or increasing your income.

For instance, let’s say your expenses are $300 more than your monthly net pay. Take a hard look at your variable expenses to see where you can cut back. This may include cutting back on optional services like food delivery, hair salon visits and streaming subscriptions.

If you still have a shortfall after making cut backs, look into ways to make extra money, like driving for Uber or Lyft, dog walking/sitting, reselling items you no longer use around your house on eBay or Facebook Marketplace, or food delivery for Door Dash or GrubHub.

On the other hand, if you’re fortunate enough to have income leftover after listing your expenses, you can increase certain areas of your budget. Ideally, you’d use this extra money to increase your savings or build your emergency fund. You never know when another bad surprise might hit.

A non-traditional approach
A non-traditional approach to spending is offered by Mariel Beasley of Duke University’s Common Cents Lab, who offered some advice to CNBC Select on how financially strained families can organize their money during an economic crisis.

To break spending into smaller, more manageable chunks, Beasley suggests using “mental accounting.” For example, figure out how many times you typically go grocery shopping and then budget per trip, not for the month. If you go to the supermarket five times, instead of budgeting $200 for the month, and possibly spending most of that on your first two trips, stick to a $40 limit per trip. You’re still spending the same monthly amount, but in smaller increments. “This helps stretch that budget category longer between paychecks,” Beasley says.

Be sure to avoid this pitfall
If you’re trying to save money, you might be tempted to drastically cut back your spending. But if you can afford to not make sudden radical changes, don’t. Start with small changes and work up from there. Similar to a crash diet, a bare bones budget where we deny ourselves all of the things we enjoy, is doomed to fail. Putting yourself on too strict of a budget is not sustainable over the long-term.

For example, if you realize while looking over your expenses that you visit the nail salon each week, instead of cutting it out cold turkey, reduce your visits to twice a month, and buy a DIY nail kit so you can touch up your nails between visits. Instead of a pricey gym membership, walk or run outside or at your local high school track or invest in home exercise equipment and weights so you can work out at home.

Try not to see budgeting as limiting yourself, but more of freeing yourself from the constant stress and worry over not having enough money.

Stick to it
Whichever budgeting approach you choose, once you’ve created your budget, stick to it. Ask your spouse or a trusted friend to help hold you accountable. You can also help hold yourself accountable by setting reminders and alerts on your accounts.

Need more help?
If you feel overwhelmed by your financial situation or are trying to get out of debt, Tower’s financial partner, BALANCE, can be a good resource. Certified counselors will answer your specific and personal money management and credit-related questions. They also offer a variety of helpful articles, podcasts and free webinars on a variety of financial topics.

Check out our Financial Know-How page for more financial education articles and savings tips. And if you are experiencing financial hardship due to COVID-19, please reach out to us. We are here to help.

Resources: CNBC, LA Times, Mariel Beasley, Duke University, Common Cents Lab, BALANCE

Contact Us