After months in lockdowns and living under tight restrictions, many Australians have gone on a “revenge spending” spree. Revenge spending is the term widely being used to describe how some people are taking out their revenge on the COVID-19 pandemic by spending money on things they haven’t been able to do for a long time.
This includes activities such as going out to restaurants and entertainment venues, buying household items, and getting much-needed personal grooming treatments. High on the revenge spending list is travel. People are finally able to book in holidays to places that have been off-limits due to border closures for the best part of two years. Domestic and international flights, and accommodation vacancies for the remainder of 2021, and well into 2022, are filling rapidly. Of course, these new spending freedoms all add up. Which is why it’s so important that any revenge spending you choose to do is within your existing financial limits.
It may sound basic, but it’s always wise to look before you leap.
In other words, it’s sensible to check your financial situation to make sure you can actually afford to go on that long-awaited trip or to buy all those items sitting on your spending wish list. Let’s call this a financial stocktake. You may have more money in your bank account than would normally be the case, because you haven’t been able to spend on these things for a while. Then again, you may have used your accumulated savings over 2020 and 2021 to take advantage of record low interest rates and pay down outstanding debts. Either way, it’s about taking a close look at what’s logical and achievable.
An obvious first step is to check your current savings balance, and then your personal or household financial budget if you have one. Keeping a budget ledger (such as an online spreadsheet) is the best way to track your ongoing income and expenses, which should give you a fairly accurate picture of how much you can afford to spend. Are there any large spending events on the horizon that you know are likely to come up in the short or medium term? Another consideration is whether you’re intending to keep a portion of your current savings aside as an emergency buffer to cover unexpected events?
Revenge spending is largely the product of pent-up emotions.
Over the last 18 months COVID has brought up a range of emotions for many but those general feelings are now shifting fairly quickly towards the positive because we can start doing most of our normal activities again. Increases in spending goes hand-in-hand with any negative-to-positive emotional transition. It’s often referred to as retail therapy. For example, you may be feeling that you desperately need to take a holiday, that it’s non-negotiable. And while that’s understandable, consider if you’ll need to use a high-interest credit card or draw down funds from your mortgage to pay for that holiday? If you’re prepared to take on extra debt, that’s fine. The key though is to assess whether your short-term spending decisions make sense and how they may impact your longer-term financial goals.
Your financial goals may have been affected by the onset of COVID-19, either directly through the loss of earnings, or due to other related factors.
If that’s the case, take a look at all your financial goals to make sure you’re still on track to achieve them. If you don’t really have a proper financial plan, or haven’t reviewed your plan for a while, here’s a few things to consider.
It’s a good idea to document all your answers, and discuss them with your family, so you can assess them and come back to them later on. Any revenge spending plans you have should definitely be factored into the overall equation. There’s nothing wrong with spending more over the short term to make up for lost spending time. What’s important is to join all the financial dots, between your short-term wants and your long-term needs.
01 Nov, 2021