Humans are reactive, even about how we spend our money. Many have fallen victim to retail therapy on a bad day or lifestyle creep after a raise, for instance.
Revenge spending is a financial phenomenon based on reacting to an emotional event and it refers to a person increasing their spending after a period of challenges. For example, the COVID-19 pandemic reduced our ability to spend on common leisure activities, and now many are increasing the amount they spend on them.
In some ways, revenge spending can be beneficial — it helps boost our economy and provide some emotional relief after a period of going without things you enjoy. However, it can become a problem when spending begins to outpace your budget, or you allocate too much of your money to “wants” versus “needs.”
[Read: How to Make a Budget — and Stick to It.]
What Is Revenge Spending?
Revenge spending is a term for the trend of spending more money than usual following a period of restraint or financial challenges, like the COVID-19 pandemic.
“In 2022, we noticed a significant increase in what we call ‘revenge spending.’ This refers to people spending more money after a challenging period of the pandemic. During that time, they couldn’t travel, shop or socialize as freely as before, so they felt the need to make up for it by splurging on purchases,” says Baruch Silvermann, CEO of The Smart Investor.
The idea is that you are “making up for lost time” with your money, spending on things like vacations, dining out and other purchases that weren’t accessible for a while.
The trend is so great, in fact, that it is one of the driving factors of recent inflation.
“This surge in spending is actually one of the reasons for inflation, as increased consumer demand has driven up prices,” Silvermann says.
How Revenge Spending Impacts Financial Wellness
Revenge spending is something you should be aware of — you might be doing it to make up for lost time by taking more vacations, or perhaps you’re increasing your discretionary spending as your income goes up.
“Often, people crave retail therapy as a way to feel better about something that didn’t go right — or stay on the high of feeling good when some did go right. Both scenarios are driven by emotion. Spending money gives you a ‘high’ that usually subsides the next day,” Raya Reaves, founder and finance coach at City Girl Savings, says.
[Read: Inside the Psychology of Overspending and How to Stop.]
Revenge spending isn’t all bad if you manage it carefully but if you let it get out of control, it can strain your budget.
According to Bobbi Rebell, certified financial planner, founder of Financial Wellness Strategies and author of “Launching Financial Grownups: Live Your Richest Life by Helping Your (Almost) Adult Kids Become Everyday Money Smart,” we sometimes have a habit of leveling up when times are good but resist adjusting our spending patterns as needed.
“The consumer who is able to be aware of the change in circumstances and match their budgets to new realities will be much more likely to stay on track with their short- and long-term financial goals and aspirations,” she says.
Curbing Revenge Spending
“It’s OK to splurge when you can afford it but it’s harder is to know when to be more conservative with your spending and take a step back. It’s not fun to cut back. But it’s also not fun to be stressed out because you can’t pay your bills because your spending is out of sync with your economic reality,” Rebell says.
If you find that your discretionary spending has increased and it’s affecting your ability to save for emergencies, prioritize retirement or meet other financial goals, it might be time to adjust your budget.
[READ: How Much Should You Save In an Emergency Fund?]
Silvermann says the first thing you can do to include discretionary and leisure spending in your budget is set appropriate limits and figure out exactly where you tend to overspend. “While leisure spending is important, many people can reduce it by 50% to 70% and still manage,” he says.
It’s also important to remember that cutting leisure spending doesn’t mean cutting joy from your life. There’s a balance to be found, and prioritizing savings can help you meet long-term financial goals that will bring you happiness and security in the future.
“You can enjoy life on a budget, you just have to do it the right way,” Reaves says.
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Revenge Spending: What It Is and How to Stop It originally appeared on usnews.com
