By now its clear that 100s of Millions of people are in lockdown. In Europe alone we are talking about Italy, Spain, France, Belgium, and now also UK and the Netherlands are going in lockdown. In America US states are starting lockdown procedures and India has already put 1.2 Billjard people in lockdown. In total we will be approaching 2 Billjard people in lockdown worldwide! What effect will this lockdown have on your wallet?
Your income side
Needless to say that being lockdown has a very bad effect on our income. I am not talking about dividends, passive income, rental income or any kind of income on investments, but I am talking about wages.
Anyone working in profession that cannot be done by working remotely is by default at the very least technically unemployed. In most developed countries we can fall back on some kind of government supported replacement income. People might lose their job or fall in some kind of temporary unemployment system.
Additionally people who have to travel a lot for work will also get a burst in their income. Personally travel is a part of my job, and not being able to travel costs me probably 25% of my income. Lucky I am fortunate enough that I am able to work from home for most parts of my job.
Your expense side
What do Europeans spend money on?
Pre-Corona according to eurostat, the European household spends mostly money on Housing 24%, Transport (13,2%), and Food (12,1%), but of course there is quite a few smaller expenses that also take a bite of the budget.
For sure some expenses will go up. You will spend more on electricity, heating, water, coffee, … all these are normal effects from having to spend more time at home. But at the same time some will go down. So the what will have the higher effect (not taking the income side into account). Will living in lockdown automatically make you more frugal?
What will you spend more on?
In a first stage I can imagine people will be spending more money on things they require when they spend more time at home. People in lockdown land in a situation that most will not have planned for.
At best they will see the lockdown coming a few weeks ahead. At this point I can imagine (and we actually see this happening) people will shop more for groceries they require during lockdown. We have seen an increase in almost all countries for grocery shopping. Especially less prepared countries have seen a rush on supermarkts causing empty shelves.
In Belgium I figured empty shelves were a thing you only saw on TV happening in less developed countries, but even here there was a traffic outside to get into the store. While in the 2,5 weeks we have been in lockdown I never came to a situation where there was no fresh items to buy, for sure there was some items that could not be purchased occasionally. The biggest rush here is over by now, but I can imagine in some countries this can lead to severe shortages. I am convinced almost everyone who could has at least grabbed a few items extra, be it knowingly or unknowingly and some of us have stacked up quite huge, preparing for a long isolation or a period where items might be more difficult to find in the supermarkets.
Another expense will be healthcare. In a first place I can see people stocking up on items to prevent them from getting ill. This includes items like mouth masks, matterials to make mouth masks, gloves, but also medicine they can use in case they fall in such as Paracetamol or Dafalgan. In the worst case scenario people will get infected and will have to go to the hospital. In Belgium the financial effect of this would be limited, but in some countries this can leave you with huge hospital bills.
Then there is hobby’s. You might not be foreseen on doing things at home and most of us will not be prepared for the sudden large amounts of spare time they have. You might get bored and want to purchase some things for you to do at home. This can include fitness items for at home or for digital entertainment.
You could spend a lot more if you would have spend it on the most expensive thing
What will you save on?
Travel! You will probably not be able to travel for a few months. At least in Belgium the government is recommending not to book any holidays for this summer. At best people will be able to enjoy a holiday in their own country. For people usually travelling in summer (unlike me), this will be a large cut back.
Another big expense you will save on is restaurants and bars. I believe most people don’t realize how much they spend on this. I personally did not notice it until I started keeping track of my expenses. I found out I spend more then any other hobby on this. Its quite a huge saving that I can no longer go. It will actually be a very good exercise for me to spend less on restaurants!
Clothing is another item you will probably save on. Who cares about what they look when they can’t go out and barely see anyone apart from family. There is no need for a new outfit for a fancy party you will attend. If you have to dress up for work then this is clothing you won’t need to purchase anything for a while either.
There is little need to worry about bills for public transport or cars. Roads look abandoned and trains drive around with no passengers.
Since the cultural sector is pretty much closed for business any fans of theater, movies, museums, dancing, will not have to worry about their wallets as there is no way to spend any money on these items.
Transport, culture, recreation, travel, restaurants, bars , clothing account for about 35% of Europeans budget and all of these will have a very large drop when going into lockdown. So yes I absolutely believe that the lockdown will help us to live more frugal. Extra expenses to adapt to our new situation will be temporary while items on the expense side have a rather permanent character. At least permanent as long as the Corona virus is raging in our cities.
This is a similar effect I expect on my expenses. Probably break even the first month, due to extra purchases to help me with my new situation, and after that I really do expect a positive effect on my expense side.
That being said as many people will have lower income, being in lockdown will not automatically give a higher savings rate!
This is your chance to embrace Frugality!
If you are not frugal yet, or had trouble to get certain expenses under control, this is your chance to do so!
If you had large expenses that you had trouble to get under control pre – lockdown, now is your chance to start with a new habit.
Did you used to go for beers every evening after work coming home with a big bar bill?
Did you go to expensive cocktail party’s every saturday?
Did you had a big restaurant bill every month?
Did go on a citytrip every month?
Did you hire people to do chores in the house?
Did you took anything that broke in for repairs instead of trying it yourself?
The lockdown will teach you that you can actually do these yourself! Perhaps you will finally become the cook or cocktologist you always wanted to be. Perhaps you will finally learn how to replace a flat tire on a bicycle. Perhaps you will learn that spending some relaxing time as home has its charms as well.
So instead of seeing this as a time of despair see this is as an opportunity to pick up some new frugal habits!
Those who have been reading my blog know I spend to much on restaurants! Since the lockdown I have been cooking fresh food myself every day, and I have even been trying some new recipes. I look forward to changing this habit permanently as it will be such a money saver!
Did I miss any effects of the virus on your wallet on the expense or the income side? Are there any habits that you are happy to chance while in lockdown? Let me know in the comments bellow!
Interested to find out more and see what affect Corona will have on my saving rate? Then join me on my roadtrip to Financial Independence!
4 thoughts on “Will the Corona lockdown help you to live more frugal?”
I’m for sure saving more. No more stops at a local Carrefour express to get an overcharged snack at the end of the day, no more lunches at work but a simple sandwich in the kitchen, etc.
I did make one big expense this week because I got a tax deduction. I finally got my dream TV. A 55″ LG OLED with Nvidia Shield TV. It was also the perfect timing. I have taken full use of the TV these last two weeks 🙂
Good write up on our expenditures and on the categories we save on. Couldn’t agree more. Though for me personally I didn’t spend more in healthcare. I had a bacterial infection in January so now that I’m healthy my health expenses are a lot lower.
I think that living more frugally should be the first step for anyone who on the search for FIRE, or financial freedom. Living below your means is a must and it shouldn’t take a crisis for the masses to realize that.
Thanks and yes that’s what I mean 😉 We spend more in a first stage to get things to do at home, but in a second stage we will start saving more as we lose some recurring expenses we usually need to do