Your Pandemic Budget: How to Save for Another 12 Months

The COVID-19 pandemic has had a major effect on the economy, which won’t be changing anytime soon. About a million people are filing for unemployment each week, and we could be years away from a vaccine. As we weather a recession, it’s wise to create a budget and have a keen understanding of your financial situation. Your budget can be temporary while you build up an emergency fund, compensate for a loss of income or pay off debt. And keep in mind that you can constantly reevaluate your budget based on changing circumstances.

In a MassMutual COVID-19 Summer Spending survey, 47% of respondents reported they spent less money this summer. The pandemic has meant fewer opportunities to spend on things like entertainment, vacations, dining out, etc. It’s a great time to make some of those trends into habits and dedicate extra money to an emergency fund and savings.

50% for living expenses

Quite a few price tags are essential — housing, food, insurance, healthcare, car payments, utilities, internet service, etc. About 50% of your budget should be dedicated to these necessities. Take a look at how much you’ve spent on these categories monthly and tally up each bill.

[Read: The Best Renters Insurance for 2020]

You should also consider whether these bills are too high for your current income situation. Can you shop around for a lower insurance quote? Could you live in a smaller apartment or take on a roommate? Should you subscribe to Netflix, Hulu, HBO and Disney+? If you’re having a hard time fitting your necessities into 50% of your budget, you can increase the allocation, source extra income or find ways to trim down some expenses.


20% to paying off debt and building an emergency fund

Paying off your debt and building an emergency fund should be next on your priority list. If you have loans or credit card debt, develop a plan for repayment and talk to your creditors about COVID-related relief options they have.

You’ll want to work on setting aside three to six months of expenses in an emergency fund. In the current economic climate, it’s hard to predict if you might lose your source of income. In MassMutual’s COVID summer spending survey, 41% said they are using the extra summer savings for their emergency fund. We recommend dedicating a portion of your budget to easing financial burdens and preparing for future ones.

20% for discretionary spending

The next 20% of your budget is for all the little things that we consumers indulge in. This is where you’ll fund your hobbies, self-care and entertainment — buy that book, upgrade your loungewear or treat yourself to a nice dinner. Some spending in this category is likely already down as people cancel gym memberships, dine out less and stop going to movies or concerts. You can continue spending in this category by getting creative: Utilize YouTube to get at-home haircut instructions, craft DIY birthday gifts and make your latte at home.

10% to savings and retirement

Set a little aside each month for your future self. Emergencies aren’t the only reason to save — you’ll also want to set aside money for future purchases like a vacation, home renovation or a down payment on a house or car.

[From Trent: Here’s What a Realistics Budget Looks Like for Someone in Their 20s]

The earlier you invest in your retirement, the more you’ll have when you retire. (This might seem obvious, but we’re talking way more thanks to compound interest.) Even investing a small amount will go a long way, especially if your company matches contributions.

Too long, didn’t read?

This budget model is by no means prescriptive. If your income situation has changed, you may need to spend a higher percentage on living expenses and less on discretionary spending. Try a budgeting app to create your budget and for an easier time tracking that spending.

Jake Sadler, CFPR at Woodstone Financial, also advises people to consider planning for when the economy reopens, “Assuming restrictions are gradually lifted on our activities, there could likely be a groundswell of consumer spending as businesses reopen, stores see an increase in traffic and restaurants fill up again.

Consumers should prepare themselves for the feeling of delayed gratification that may come with reopening the economy. Months of isolation, restrictions and reductions in spending will likely lead many into a flurry of spending. Resuming the activities and spending habits important to you is great, [but] the danger from a budgeting perspective is too much all at once.” In other words, don’t forget your budget once movie theaters open again.

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Danika Miller

Personal Finance Reporter

Danika Miller is a personal finance reporter at The Simple Dollar who specializes in banking, savings, budgeting, home insurance, and auto insurance. Her reporting has also been featured at,, and elsewhere.