When COVID-19 first shut down the U.S. in early 2020, experts figured it would last, at most, a few months. Yet, the one-year anniversary of the pandemic has since passed, and now it seems like there finally is an end in sight.
As the vaccine rollout moves forward and citywide restrictions start to loosen, many people feel like it’s time to get out and get back to life. With a return to (somewhat) normalcy comes a return to spending. In some cases, that spending may turn into splurging with the money you did not spend during the pandemic. That can be fine, if done in moderation.
Let’s take a look at how to control spending so short-term “revenge spending” doesn’t morph into long-term runaway spending that will impact your financial future.
What Is Revenge Spending?
"Revenge spending is the phenomenon of consumers making purchases now to ‘make up for lost time’ during the pandemic, when so many opportunities for spending were curbed because of health restrictions or financial duress,” John Cabell, director of Banking and Payments Intelligence at J.D. Power, told The Balance in an email.
If you haven’t heard of the term before, think of it like a dam that’s about to burst. All the water pent up inside is consumer demand. The dam itself is the pandemic, which has been holding back spending. As the end of the pandemic looms near, cracks in the dam are appearing—and growing wider.
For the third consecutive month, the average household expects spending to rise, as of March. The median household spending growth stood at 4.7% in March—the highest reading in this category since December 2014.
How to Control Revenge Spending
It’s tempting to want to celebrate after such a difficult year. But for some, the celebration can take the form of purchasing a surplus of things they want, but don’t necessarily need. This can be classified as emotional spending, which means you’re buying habits are dictated by how you feel. The purpose of each purchase is simply to make you feel better at that moment.
Emotional spending can be a slippery slope, and it’s important to reach out to friends or professionals if you are overwhelmed by feelings of sorrow or stress. Also consider turning to similar outlets of emotional relief, such as reading or starting a creative project, instead of shopping.
Cabell says that consumers may feel this return of the economy is a once-in-a-lifetime event, and it may be. Regardless, it’s important to set a budget for discretionary spending. This will help control your personal spending and limit impulse buys. A sound budget, along with a few other tactics, can prevent a spending-spree hangover that rivals the stress of the pandemic.
Determine Your Wants Versus Needs
This is a part of basic budgeting, so it may be something you’ve heard of before. When figuring out how much you spend in a month, take a look at the things you want versus the things you need.
Needs are things such as food, shelter, electricity, hot water, and clothing; These are your basic necessities in order to sustain life. Wants, on the other hand, are those extra things that would be nice to have but you can still live without. Going out to dinner, heading to a theme park, and splurging on a new dress are all considered wants.
If you budget monthly, split your expenses into needs and wants, and make sure you have enough money for basic essentials. That way, you can use whatever is left over for the wants you’ve had your eyes on.
While it’s completely OK to buy items or experiences in the "wants" category sometimes—especially now, when we’ve been craving experiences—it’s key to be cautious and take a hard look at the funds you have available right now.
How many of us have had to cancel a vacation due to COVID-19? How many of us are itching to get back on the road now that countries are opening up? If you have the resources for your vacation, that’s fine. However, if you’ve already spent money you’ve been refunded, or don’t have the savings right now, don’t let the impulse to spend create debt.
Switch to Cash
If you’re having trouble keeping up with all your spending, it may be time to drop the cards. Credit cards can offer a line of credit far greater than you can actually pay. Debit cards, while less dangerous, still can provide access to an overdraft line that will let you spend more than you have. To solve this, turn off your overdraft feature, or, even better, switch to cash. Take only what you think you’ll need for the day and nothing more.
Minimize Online Shopping
Companies do their best to get you to buy things. It is, after all, how they stay in business. In fact, they utilize a whole host of features to get you to impulse buy. These vary from rewards-program discounts and sales, to product reviews and return policies. While brick-and-mortar stores feature some of the same tools, too, many studies show that online retailers put a heightened focus on impulse purchases. Interactive displays, for example, tend to increase a shopper’s desire to impulse buy.
Members of the communications program at the University of Michigan recently conducted a study on the online tools popular retailers use to impact impulse buying. According to the data, the websites of five retailers—Macy’s, OpticsPlanet, Amazon, Newegg, and Target—had more than 30 respective features that could contribute to impulse buying.
Rather than browsing digitally, consider traveling to an actual store to shop in person. If you need to shop online, search for the specific item you need and nothing more.
Make Yourself Wait to Make a Purchase
To avoid splurging while shopping, it’s important to do a self-check and ask yourself if the item in front of you is something that will add value. When shopping online, for example, it’s sometimes too easy to immediately log onto your favorite website and purchase a new pair of shoes that were just listed. Instead of making a decision and buying those shoes then and there, write the name of the item down. If in a few days you’re still dreaming of them, or any item that’s on that list, make the purchase.
As with any purchase, make sure you have the budget to afford a splurge spend before putting your funds toward it.
Other Financial Goals to Keep in Mind
It may feel good to buy those new shoes, or whatever else you’ve been wanting to splurge on, but if you already have half a dozen others in your closet, your money may be put to better use elsewhere. If you’ve got enough cash for all your needs as well as some discretionary spending, consider using those funds for something bigger. The following are some ideas for alternative uses of that money:
- Saving for a down payment on a home
- Putting your money in a retirement account, such as a traditional or Roth IRA
- Investing it, whether it’s in an index fund or the stock market