With spending limited to what could be ordered online, American households managed to spend less and invest more in savings in the heart of the pandemic.
That apparently went the way of the no-knead sourdough bread madness.
In an April survey by the Federal Reserve Bank of New York, consumers said they expected their spending on non-essentials to increase an average of 4.1% over the next 12 months. That’s an increase from an intended 1.6% increase in December 2020 when vaccination was just beginning, and the highest since the survey began in 2013.
The New York Fed reported that the likelihood of spending on furniture, appliances, home repairs and vacations in the next four months hit an all-time high in the April poll.
Okay, after over 16 months of relative imprisonment, expect to get out and do things and buy things. But if you let your spending pendulum swing to the limit, it can mean trading a quick high in current pleasure for a long-term hangover that is putting your financial security at risk.
Here are a few ways to curb your spending craze so you can have better fun now without messing up your future:
Bucket. Now that spending is easier, it is advisable to create your own guard rails for non-essential spending. Even if you hate line item budgeting or software, make a commitment to break your disposable income into at least four categories: essential expenses, emergency savings (assuming you haven’t reached that goal yet), long-term retirement plans, and yes, finally, non-essential expenses. How much goes into each bucket is your decision and your responsibility. By committing to all four beforehand, you will avoid the short-term temptation of overspending.
Control your credit card enthusiasm. One of the reasons credit card debt has declined during the pandemic is because banks weren’t in the mood to offer new cards. In spring 2020, around 70% of banks said they made it difficult to obtain a credit card. That is no longer a problem. New credit card applications are approaching the pre-pandemic pace, and issuers are far fewer rejecting them: only 16% of applications were rejected in June, compared with more than one in four in February.
Having access to a credit card to cover essential expenses and for unexpected emergency bills (z will is no less financially dangerous than it was before the pandemic. And it can get even more expensive. The average interest rate on unpaid credit card balances fell during the pandemic, but on the most recent balance sheet (May) the average interest rate had risen to 16.3%.
If there is a need, what is the need? Whether you’re looking to buy a car, buy a home, or freshen up your closet, it’s important to get used to spending as little money as possible to meet your needs. For example, if you skip the extra bedroom when buying a home, it could add up to hundreds of thousands more in your retirement accounts in decades.
The best car change right now is not to buy one. A combination of pandemic issues has created an insane situation where even buying a used car with the smart car is now far too expensive. If you can wait six months or a year for the auto market to settle down (it’s a supply problem), buying a used car remains one of the smarter long-term financial plans.
