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One of the biggest changes to come out of the COVID-19 pandemic is the widespread shift to a work-from-home lifestyle. For many employers and their teams, this markedly different working situation could become the new normal for the foreseeable future. It also can bring significant short- and long-term effects to the average worker’s savings and expense picture.

New Budgetary Options

As you may have already learned, it’s possible to save money by working from home. For example, transportation costs are reduced or eliminated, as is the amount of money spent on work attire. Similarly, other costs – like supplies – can increase.

If you’re new to budgeting, now is a good time to start – the 50/30/20 Budget is a useful tool to help steer you. Or you might already have a budget that’s guiding your spending and savings. But if it was created in a pre-COVID-19 world, you may want to consider an update.

Over time, the changes associated with working from home give rise to new budgetary options that have the potential to improve your overall financial picture. So if you’ve adopted a work-from-home lifestyle, it may benefit you to take a closer look at how your expenses have shifted and whether your budget should be realigned to better support your financial goals.

Working Expenses That May Have Changed

Working from home for the long haul brings a number of cost changes – both positive and negative – into clear focus, some of which you may not have considered.

  • Transportation. One of the most obvious changes is the reduced or eliminated cost of commuting to and from work. And if you’re driving less, you may also be able to reduce your car insurance premium. You may be able to reduce or eliminate costs related to parking or public transit too.
  • Dedicated office space and supplies. When you’re serious about working from home long-term, you need the supplies to do it properly. That may mean designing a dedicated work space with all the associated equipment and technology you’ll need. Some requirements may include comfortable and durable furniture, filing cabinets, high-speed internet service and dependable cellphone service. You may also need commercial-quality or upgraded computing, scanning and printing equipment. Even the assorted office supplies you used at work may become a new line item in your budget.
  • Utilities. Your household energy bill is likely to be higher under a work-from-home arrangement, as you could be using more heating and/or air conditioning to maintain comfort. You’ll probably also have higher water bills and may face added household maintenance costs related to system breakdowns caused by greater use.
  • Insurance. Working from home may also affect the type of homeowner’s insurance policy you’ll want to invest in. Standard plans may not cover business property or business-related liabilities, so check with your insurance agent to understand your options and fill in relevant gaps, such as in the event of a flood, for example. You might also need other types of business-related liability coverage when working at home.
  • Childcare. Expenses related to childcare don’t necessarily go away in a working-from-home environment, but the costs can change for many individuals and families. For example, you may be able to save money if there’s a decrease in the number of hours your children need supervision, such as before and after school, or during the time you used to spend commuting. Or, you may be able to arrange for childcare that’s closer to home – which may be more or less costly – than what you paid previously.
  • Food. You may find you’re spending less money going out to lunch when working from home, which can add up significantly over time. But you may also have higher grocery bills due to more meals being prepared at home.
  • Work attire. Working from home may motivate you to spend less on work wear and dress shoes if you’re not meeting with co-workers or clients on a regular basis.
Over time, the changes associated with working from home give rise to new budgetary options that have the potential to improve your overall financial picture.

How to Manage These Expense Changes

With less money going to some expenses, but more money going to others, it’s a good idea to develop a new budget around working from home, taking into account all of the options you have for managing your savings and expenses. Here’s what to consider:

  • Assess the cost differences
    Compare all of your new costs against the costs under a traditional working-in-the-office model. This will help you to see where you have additional flows of cash for other areas, and which line items may require new funds. This big-picture view will help you make more informed decisions about where extra cash should be diverted, such as into savings accounts or to pay off debts.
  • Consider reimbursements and tax credits
    Some business costs such as equipment, supplies and technology may be reimbursed or covered by your employer. Similarly, unreimbursed work expenses and other costs may be tax deductible when working from home. To maximize your budget flexibility, you’ll want to pursue all reimbursements and tax deductions available to you, so talk with your employer and tax professional to understand these changes.
  • Revise your spending and saving plan
    With your expense picture looking a bit different when working from home, you may also be able to set aside more money for your long-term financial goals, or even reimagine your financial goals altogether. You may also have extra money you can direct into paying off debt sooner. In addition, consider revisiting your retirement contribution plan and see if changes are in order.

A New Budget for the New Normal

If you’re working from home for an extended period because of the COVID-19 pandemic, it’s to your financial benefit to reassess your budget structure in line with this new lifestyle. Ultimately, that means taking a practical look at ongoing changes to your disposable income and how you can capitalize on them over time.

This information and recommendations contained herein are compiled from sources deemed reliable, but are not represented to be accurate or complete. In providing this information, neither KeyBank nor its affiliates are acting as your agent or are offering any tax, accounting, or legal advice.

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