The COVID-19 pandemic has forced shutdowns, job cuts and serious financial challenges, but there has been a silver lining amidst all those troubles: You may have been able to keep your wallet closed more than you would have in a typical year. Staying at home can often mean spending less. With the promise of vaccinations and stimulus checks on the horizon, though, you may find yourself thinking about everything you want to buy as soon as life regains some sense of normalcy.
That anticipation of being able to do, see and experience life again is natural. However, it’s important to not get too excited and fall in a revenge spending trap. What is revenge spending? It’s when you take out all your frustrations of the past year by deciding to drain your savings on everything you haven’t been able to do: buy new outfits, wear those new outfits to dinner at a restaurant, book trips and more. As you look ahead to opening your wallet again, consider these key tips for avoiding revenge spending and focusing on smart decisions with your cash.
1. Compare your spending between 2019 and 2020
While 2019 might seem like a lifetime ago, your online banking account may have a full breakdown of your monthly spending from the year before the coronavirus hit. Some banks offer helpful categorized spending visualization tools to show how much you’re spending at restaurants, drugstores, grocery stores and other sections of expenses. Since your spending likely shifted between 2019 and 2020, now is an ideal time to evaluate the differences between those years.
“It’s always a good idea to review transactions and examine trends in spending habits,” says Katie Horton, CFP, CPA, founder of Texas-based Financial Cairn, says. “Spending shines a light on what priorities actually are, rather than what we say they are. While the pandemic has taken away the opportunity for us to spend on certain things, it could be a blessing if we use it as an opportunity to evaluate how much those things actually mean to us.”
2. Think about your lifestyle between then and now
Once you’ve had a chance to dig into your spending, think about how you’re feeling compared with your pre-pandemic lifestyle. Have some of your new habits helped more than your wallet? For example, has cooking at home helped you avoid large restaurant bills while also improving your physical well-being? In addition to your physical health, Tara Unverzagt, founder and chief advisor of California-based South Bay Financial Partners, says that she has worked with clients on self-care to address mental health issues that have stemmed from the pandemic.
“There are a lot of people who are unsettled, lonely, and dealing with depression or anxiety from all the chaos we’ve just been through,” Unverzagt says. “Some ways that we’ve seen people successfully deal with this is by exercise — getting out and walking, running or riding your bike. Yoga and/or meditation is also great. [You can also] start a hobby that helps you focus, which ends up [feeling] like meditating. Some hobbies I’ve heard of include painting or coloring, throwing clay/pottery and rock climbing.”
If you’ve embraced a new, more affordable hobby in place of more expensive items — ditching a monthly gym membership in favor of running outside, for example — think about making that smaller price tag a permanent fixture in your life moving forward.
3. Set aside a ‘fun fund’
Horton recommends what she calls a “fun fund,” which is a stash of cash for fun activities that are not included in monthly expenses. Right now is the time to think about organizing that fund; when your favorite restaurant is ready to welcome back at 100 percent capacity or your favorite designer unveils a new summer line of swimwear, you’ll have money earmarked for the bill.
“If your spending has decreased during the pandemic, you may have some extra savings built up,” Horton says. “Make a list of things you are excited to get back into and prioritize. Allocate how much of your savings you’d like to spend on each activity or item. Then, when that killer travel deal comes along, go for it. Just don’t spend more than your allocation unless you are willing to give in another place.”
4. Know where you actually want to go
Speaking of those killer travel deals, you can expect a tidal wave of incentives to inspire you to pack your bags. Your inbox — and all those lists for last-minute flight deals — is a route that might get you to spend on going places you otherwise would have skipped. Instead of waiting for those deals to arrive, start thinking about where you want to go and how much you are willing to pay to get there now.
Aim to avoid the mistake of spending too much on that getaway, too. Consider a data point from TUI Group, a company that owns hotels, cruises and airlines: Europeans are paying 20 percent more for their vacation bookings than they did before the pandemic. Just because you haven’t traveled in a while doesn’t mean you need to splurge.
5. Put spending limits on your tickets
If you’re a fan of live music, you’ve been out of luck with no performances and no festivals to attend. While an expected date for the return of major tours from chart-topping acts like Taylor Swift, U2 and Jay-Z is uncertain, one piece of the post-pandemic concert puzzle feels likely: higher ticket prices. Between reduced capacities at venues and employees who have been out of work for nearly a year, scoring a seat at any of these shows will likely require more cash.
Major sporting events are likely to follow the same pay-more-for-your-ticket model. Consider New York, where sports venues were recently approved to welcome fans back at 10 percent of their capacity levels. Those rare seats seem poised to come with a premium price attached to them. So look ahead to 2021 and 2022 with a clear picture of which artists and teams you absolutely don’t want to miss live and which events might be better enjoyed from the comfort – and cheapness – of your couch.
6. Stay in touch with your emotions
In addition to carving out long-term strategies for the road ahead, it’s important to recognize that revenge spending can rear its head at any given time. You will need to be disciplined and remind yourself to press pause when thinking about spending.
“If you are tempted to revenge spend, take a moment to check in with your emotions,” Horton says. “You are likely trying to fill some sort of need. Maybe you really want time with good friends. So have a girls’ night out instead of a weekend trip. See if there is a cheaper or free alternative that will fill the same desire that is urging the revenge spending.”