With spending limited to what could be ordered online, US households were able to spend less in the midst of the pandemic and invest more in savings.
This is apparently the path to the no-knead sourdough bread craze.
In an April survey by the Federal Reserve Bank of New York, consumers said they expected their spending on non-essentials to increase by an average of 4.1% over the next 12 months. This is an increase from an expected 1.6% increase in December 2020, when vaccination was only just beginning, and the highest reading since the survey began in 2013.
The New York Fed said the odds of spending on furniture, appliances, home repairs and vacations over the next four months hit all-time highs in the April survey.
OK, after over 16 months of relative captivity, you have to expect to go out and do stuff and buy stuff. But letting your spending pendulum swing to the extreme can mean trading a quick, instant pleasure for a long-term hangover that puts your financial security at risk.
Here are some ways to curb your enthusiasm for spending so that it better balances having fun now, without ruining your future:
Tub. Now that the expenses are easier, it is a good idea to consider building your own railings for non-essential expenses. Even if you hate line item budgeting or software, commit to dividing your disposable income into at least four compartments: essentials, emergency savings (assuming you are still light on that goal), retirement savings at least. long term and yes, finally, non-essential expenses. How much goes in each bucket is your calling and your responsibility. By committing to all four ahead of time, you help avoid the short-term lure of spending too much money on needs.
Limit your enthusiasm for credit cards. One of the reasons credit card debt declined during the pandemic is that banks weren’t in the mood to come up with new cards. In the spring of 2020, around 70% of banks said they made it harder to get a credit card. It is no longer a problem. New credit card applications are approaching the pre-pandemic rate, and issuers are rejecting far fewer: just 16% of applications were rejected in June, compared to more than one in four in February.
Having access to a credit card to cover essential expenses and for unforeseen emergency bills (medical coinsurance, for example) is one thing, but getting a new credit card or requesting a higher credit limit (also increasing. in recent times) to pay for wants is no less financially dangerous than it was before the pandemic. And it can get even more expensive. The average interest rate charged on unpaid credit card balances declined during the pandemic, but in the most recent count (May) the average rate had risen, to 16.3%.
If it’s a need, how big is a need? Whether it’s buying a car or a house, or refreshing your wardrobe, it’s essential to make a habit of spending as little as possible to meet the need. For example, skipping the extra bedroom when buying a home can add up to hundreds of thousands more to your retirement accounts decades from now.
The best car move right now is not to buy one. A combination of pandemic issues has created an insane situation where even the smart car movement of buying a used car is now way too expensive. If you can wait six months or a year for the auto market to calm down (it’s a supply issue), buying a used car is still one of the smartest long-term financial plans.