This isn't the time for a spending spree
Since the outbreak of COVID-19, a new set of terms has become part of our shared vernacular. Terms such as social distancing, Zooming, super spreader and herd immunity are now commonplace. As COVID’s impact continues to fade, new terms are being coined to describe our attitudes and behaviors in this new post-pandemic world as well.
One of these terms I recently heard for the first time is “revenge spending” – the purchasing of items or services in excess to make up for the reduced spending during the pandemic. Often this spending is impulsive, unnecessary and extravagant.
According to Moody’s analytics the American people have built up excess savings of 2.6 trillion since March 2020. That is the equivalent of 12% of our gross domestic product. Moody’s predicts that Americans will spend approximately 20% or $520 billion of this excess savings in 2021 alone.
According to retail expert Kristen Gall, businesses believe the majority of this spending will be directed toward things they have felt deprived of. Eating out, vacations and live entertainment are prime candidates for revenge spending.
The problem with this type of behavior is often we overestimate how much we have deprived ourselves, and underestimate how much we are splurging. I don’t know about you, but I have often justified that extra dessert with dinner because I had a “light lunch” only to step on the scales later to realize that trade was nowhere near even.
If you have added to savings during the past year how do you avoid backtracking? I thought this week I would share a few basic ideas I had to avoid giving back all the gains you might have made in your finances.
Consider getting off social media for a few months. Facebook envy is a very real thing. When people you know start sharing the pictures of their trip to Cancun, or the lobster tail and wine they enjoyed the night before, it can be easy to fall for the trap and think you deserve those things too.
Consider removing the temptation of overspending by investing those extra funds. For many, money sitting in a bank account is money begging to be spent. However, money that has been contributed to a retirement account is not as accessible and therefore less likely to be used on unnecessary purchases.
Consider instituting a 30-day rule for all irregular spending over $100. Money spent in the heat of the moment is often regretted after that moment has passed. Setting up a rule for yourself of waiting 30 days on big purchases can be all it takes to avoid a big mistake.
I’m sure many of you who read my columns regularly think I am a real killjoy. Always advising you to not buy things you want, (or think you want). But that’s not my intention at all. I want you to be happy and successful in life, and know that never comes from what you buy. So this summer, avoid revenge spending, because as a famous German proverb says “revenge converts a little right into a great wrong.”
(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations.)
Luke Davis is the director of operations and compliance at Stewardship Capital in Independence.