Don't Let Revenge Spending Wreak Havoc on Your Budget This Summer
Live shows, concerts and sports venues are selling out within hours; cruise and hotel bookings have surged; airlines can’t keep up with the number of passengers booking flights; and restaurants can’t hire fast enough to accommodate demand. Even some national parks are turning visitors away this summer due to overcrowding.
It’s not difficult to understand what’s behind the increase in demand for travel and entertainment. After coping with coronavirus restrictions for more than a year, many people are eager to resume a broad range of activities, previously curtailed by the pandemic.
As businesses reopen, consumers are opening their wallets wide, seeking travel upgrades, luxury services, and unique experiences. By June, spending on luxury goods and services had risen 11% above pre-pandemic levels,1 and one survey found that 40% of Americans are willing to take on debt to treat themselves lavishly this summer.2
While it’s understandable that consumers are ready and willing to spend on meaningful experiences after such a challenging period, revenge spending—the desire to make up for lost time by overindulging—can wreak havoc on your budget. Fortunately, there are ways to keep spending in check while reconnecting with the people, places, and experiences you’ve missed.
1. Prioritize your spending
There’s nothing wrong with the occasional splurge. In fact, that’s one of many reasons to follow a budget. A budget provides a clear look at how much money is coming in (income) and going out (expenses) of your household each month. That allows you to assign a purpose to each dollar, including discretionary expenses for travel, entertainment, dining out, and more.
For example, if you plan to take a vacation this summer, use your budget to determine how much you can reasonably spend and set limits for yourself. If you feel the need to splurge on something that’s really important to you or your family, your budget can help you identify ways to pay yourself back by cutting expenses in the months ahead, so you don’t jeopardize longer-term goals, such as saving for retirement, a child’s education, or paying down debt.
2. Avoid racking up new debt
Americans paid off a record $108 billion in credit card debt in 2020.3 Yet, many risk racking up new debt as the economy continues to reopen. If you were among those who worked diligently to pay down debt over the past year, take time to reflect on what it feels like to owe less or to be debt free before using credit cards to make new purchases. If you have a hard time avoiding impulse spending, leave credit cards at home when shopping or meeting friends for a night out. Disable your digital payment app on your phone for the night as well. Relying on cash can be a good way to curb impulse spending.
3. Set financial boundaries
Pressure from others can result in spending more than you otherwise would. Don’t be afraid to say no to friends or family members who encourage you to attend an event or take a trip that may be too expensive for your taste or is not something you look forward to doing. If you feel peer pressure to spend in ways that are beyond your means, suggest more affordable alternatives. Remember, it’s your money. It should be spent on the people, things and experiences that give your life meaning and purpose.
4. Don't forget recent lessons learned
The pandemic is a reminder of the importance of having access to emergency savings and not overextending yourself with credit card or other personal debt. Like many people, you may have identified certain expenses you could live without. Whether you saved more, spent less, or invested more toward your goals, try to keep those positive financial habits intact.
Keep in mind, as opportunities for spending return, it can be tempting to make up for lost time. However, overspending can have serious long-term consequences for your personal and financial well-being.
If you have questions about these suggestions or other ways to stay on track toward your important goals, call the office to schedule time to talk.
This information was written by KRW Creative Concepts, a non-affiliate of the broker-dealer.