Revenge Spending: Why You Should Think Twice Before Indulging
With the pandemic winding down, many are eager to reclaim lost experiences. Invitations for social outings are being eagerly accepted. You might find yourself enthusiastically agreeing to travel plans and impulsively purchasing items that catch your eye online, convinced you deserve a reward after a challenging year.
If this resonates with you, you might be succumbing to revenge spending.
Revenge spending refers to the impulsive purchases we make as life resumes. This includes booking that long-awaited vacation or refreshing your wardrobe after being in loungewear for so long. It may even involve upgrading your home furnishings to create an inviting space for gatherings.
Rachel Sheedy, manager of the CFP Board’s Financial Planning Knowledge Center, likens it to retail therapy's counterpart.
Impulse spending has surged by 51% compared to last year. Travel rates are also climbing. Over Memorial Day weekend, the TSA recorded over 7.1 million travelers, the highest since March 2020.
However, not everyone can partake in revenge spending. Many have faced job losses, reduced incomes, or the heartache of losing a family provider.
Conversely, those who retained their jobs might have saved significantly. According to Sheedy, remote work cut many costs, such as commuting, professional attire, and frequent haircuts, while some benefited from stimulus payments.
As you feel ready to step out again, resist the urge to splurge. Revenge spending, like retail therapy, often leads to regret. With rising inflation, Sheedy cautions against spending too freely, as prices are likely to increase.
NEW MONEY RULES FOR THE NEW NORMAL
This doesn’t mean you have to sacrifice enjoyment for financial prudence. “We’ve faced tough times. A bit of fun is essential,” says Sheedy. “Just be mindful of your spending.” She suggests cost-effective strategies for socializing, like opting for happy hour instead of dinner, allowing you to enjoy the experience without overspending.
If you’re considering a vacation, go for it—just search for deals. “Consider a weekend getaway instead of a week-long trip,” suggests Sheedy. And remember, don’t fall into the trap of trying to impress others. “The Joneses won’t pay your bills,” Sheedy advises. “You’ll end up with hefty credit card bills.”
Create a budget that reflects your true priorities, not just what you see online. “Budgeting revolves around making choices and determining what’s essential,” Sheedy explains. If travel is crucial for your mental health after being cooped up, plan for it but adjust other areas of your budget accordingly.
FINANCIAL GOALS
Above all, continue saving. “The pandemic, similar to the Great Recession, underscores the need for an emergency fund,” states Sheedy. Aim to save three to six months’ worth of expenses in a savings account.
Also, invest time in financial education. “Women have faced disproportionate impacts due to the pandemic,” says Lauren Pearson, co-founder of The Wealth Edit, a community for women eager to enhance their financial literacy. “Our primary goal is for women to invest in their knowledge.” And that doesn’t mean buying a luxury handbag; it’s about understanding finances and setting clear goals.
“Having defined goals significantly increases your chances of success compared to saving aimlessly,” says Emily Lassiter, co-founder of Wealth Edit.
Lassiter and Pearson are currently hosting the #goodwithmoney challenge, which encourages participants to save $5,000 this summer while learning valuable financial management skills.
“We aim to foster mindfulness in spending that might have been lacking previously, striking a balance between enjoyment and thoughtful expenditures,” Lassiter shares.
When focused on a goal, it’s easier to assess daily spending. “Do I really need that Instagram ad shirt, or would I prefer an unforgettable family vacation?” Lassiter reflects.
