by Elizabeth Aldrich
July 30, 2020
by Elizabeth Aldrich
July 30, 2020
For most of us, 2020 has been an event-filled decade. Ahem, I mean, year. Wait, we're only halfway through?
If we're going to make it through this roller-coaster ride, keeping our finances in order is essential. For me, major changes in nearly every aspect of my life during the first few months of 2020 have meant that my financial life has also completely changed.
I decided it was well past time to completely overhaul my budget — here's how I did it.
I'm self-employed, and while I didn't lose all of my work when COVID-19 became a pandemic, work definitely slowed down. That being said, it has mostly stabilized now, so it's a good time for me to go through my records and figure out my income situation.
Luckily, I use QuickBooks Self-Employed, which automatically imports all of my banking data, making it very easy to track my income. When I log into my account, I'm able to isolate income from self-employment and look at weekly, monthly, and annual trends. As I suspected, my income has started to recover, but my monthly take-home pay is still well below where it was in late 2019. Knowing where my income is right now is crucial to reworking my budget accordingly.
I cut myself some slack when it came to hustling to find new clients during the first couple of months in quarantine. However, I'm now ready to go back to focusing on hitting income goals. Rather than setting them where they were in 2019, I'm going to set them according to where my income is right now.
I'm taking my average monthly earnings since the pandemic hit, adding 50%, and making that my income goal to be achieved by September. This gives me the months of July and August to slowly make my way up to that level.
In light of changes in my income — as well as my spending — I decided it's time to make new savings and investment goals for myself that reflect my current situation. I'm lucky to not have a lot of fixed expenses (I'm debt-free, don't own a car, and rent on a monthly basis), so I prefer to set my savings goals and then adjust my spending accordingly rather than the other way around.
I had very aggressive savings goals pre-pandemic as I was trying to make up for years of not saving anything for retirement. My savings rate hovered at about 50%. I'd like to get back to that eventually, but for now, I'm setting it at 30%. If I hit my income goals in September, I'll increase that to 40%.
Since the pandemic hit, my income hasn't been the only thing to change. My entire lifestyle changed, given that I was living abroad and traveling most of the time. Before, travel was the biggest item in my monthly budget. Now, it's food. Spending on entertainment and things like nails and hair has also gone down to $0, but my online shopping has gone up a bit.
To figure out exactly how much I'm spending monthly and create new spending categories, I logged back into my QuickBooks Self-Employed account. You could just as easily go through your transactions on all of your bank and credit card accounts, but I like that QuickBooks imports all my transactions into one place.
From there, I'm able to tag transactions as personal, see my gross monthly spending, and also categorize expenses to get a clearer picture of where my money is going.
Now that I know how much I'm earning and spending each month (and what I'm spending money on), I'm able to set spending caps by category that allow me to achieve my savings goals. Since I want to save 30% of my take-home pay, I know that I can spend 70% of it.
So, I took 70% of my current monthly income and split that up between my biggest spending categories, which are rent, groceries, takeout, online shopping, and donations. I also set aside a portion of my disposable income for a "flex" category that's reserved for miscellaneous expenses and can also go toward one of the aforementioned categories if I go over my spending limit one month.
I've long been singing the praises of multiple free online savings accounts that you can nickname according to various savings goals, and it's still a habit I partake in with my savings accounts. This allows me to keep these goals at the front of my mind and track my progress toward each one.
However, my savings goals have changed since the pandemic hit. I'm no longer saving for travel or self-care, but I've started saving more for community support (which includes donations, community organizing, and more). After having my life turned upside down in 2020, I'm also considering saving money to purchase some land and perhaps build a tiny home.
Now that I've got my new budget and financial goals set up, the final step is to automate the whole process to make sure I follow through. I do this by setting up automatic monthly transfers from my checking account to my high-yield savings account and investment account.
I'll revisit these in September, along with the rest of this budget, to see if my income and savings goals need to be adjusted. I took a few hours out of my Sunday to complete all of these tasks, and it was well worth it — especially considering I'll only have to do it once every few months.
Are you looking to start saving for a car, house, or rainy day? Check out our savings accounts that can help you get there.