Ryan Derousseau, Senior Contributor
March 31, 2021
COVID-19 provided the perfect opportunity to save for those that didn’t work in a sector dramatically hindered by the pandemic. Without the ability to leave the home, spending levels plummeted while savings rates rose. This saved cash also led to some much stored-up desire to splurge.
Now that the ability to spend has returned, coinciding with the growing vaccine distribution, experts have begun to warn about the desire to overspend as a way to make up for the lost year. In other words, there’s a potential for a revenge spending spree.
Bloomberg estimated that Americans have saved $1.7 trillion since the start of the pandemic through January 2021. The St. Louis Federal Reserve finds that Americans’ personal savings rate still stands at 13.6%. While that’s well below the height of the pandemic, when rates reached 33.7% in April 2020, it still stands above any other pre-2020 high on record, which goes back to 1959. The result? People have money to spend, and they’re starting to see more opportunities to do so.
After more than a year of having to avoid doing things like eating out and traveling, economists and retailers expect a bounce-back in spending that the US hasn’t seen in decades. For those that have used the last year to build a stockpile of savings or reworked their finances to build towards financial independence goals, this opportunity to return to regular life again could also damage much of what you built over the past year. At the same time, some revenge spending makes sense; it was a tough year, after all.
Instead, begin to start planning now for the purchases you expect to make, once you have the vaccine and can begin returning to a somewhat normal life again. By planning now, it can protect you from overspending while still helping you scratch the urge to splurge.
Budget Using 2019 Spending Levels
You want to look at your 2019 spending compared to 2020. By doing so, you’re evaluating not just how much you used to spend, but also what you don’t need to continue to spend money on, in order to come up with some realistic 2021 estimates.
Maybe your office still plans to continue to work from home for the foreseeable future, then you may not want to spend as much as you used to on work clothing. Maybe you drastically miss doing something specific, like going to your local rock-climbing gym or the movies. If you plan to do that once you can again, make sure to incorporate that spending into your 2021 estimates.
By taking a look at what you don’t need anymore, you also can figure out areas you definitely will return to. Then make sure to add in the amount you still plan to save, even if the pandemic’s end nears. This will give you a clearer understanding of how much extra income you have to spend on ‘revenge,’ without sacrificing your savings.
Launch A Revenge Fund
You want your revenge spending to help you mentally recover from the past year of seclusion and isolation. You don’t want it to sink your savings efforts – after all, you’ve suffered enough. To protect against this, move the extra funds that don’t need to go towards saving or spending this year towards an account specifically designed for revenge spending. Maybe you want to go on a trip as soon as you can. Maybe you want to go to a fine-dining restaurant the day you’re officially vaccinated. Maybe you want to buy your first dress in over a year. Whatever the case, you can use this fund without regards to guilt or concern that it’s taking away from your other savings goals.
The good news about this fund? You likely already have some cash that you can put towards it. If that’s the case, then you don’t need to have a plan for it. You can spend it as you see fit. If you want to continue to fund the ‘fun fund,’ then you’ll always have this little backstop of protection from any spending splurge that could cut into your savings goals.
Use Your Saved Points For Upgrades
While you avoided spending as much during the pandemic, you still likely racked up points on your credit card as you bought food and other items for around the house. Many airlines and credit card points had specials that applied directly to pandemic-style spending, like ordering take-out and grocery store purchases. At the same time, you weren’t likely spending those points, since you couldn’t travel.
Now you can. The revenge spending urge comes from the lack of treating oneself over the stressful moments of 2020. Now that you can, there’s the desire to buy even more expensive things than you would have. Instead of the trip, it has to be the first-class tickets and stay in a 5-star hotel. Instead of the nice meal out, it’s the extravagant 12-course meal at a celebrity chef’s restaurant.
As much as you can, use your points for this type of spending. If you’re going on a trip, use your points to pay for the first-class upgrade. Use your hotel points to afford the revenge spending style stay in the president’s suite. By utilizing these tools, it prevents you from sapping the revenge fund too quickly, while you still experience the lavish splurge.
This allows you to gain the benefits of the spend, without realizing that your finances are the victim of your revenge spree.
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