Are you spending more than usual?

According to the Reserve Bank of New York, A surge in credit card spending and home purchases caused US household debt to increase by $313 billion, or 2.1%, in the second quarter of 2021. That is the largest nominal jump since 2007 and the biggest percentage increase in seven and a half years. Some blame revenge spending for this surge in spending.

 

According to Investopedia, revenge spending is a rush to spend, typically following an unprecedented event. This spending spree happens as people seek to reclaim control and a sense of normalcy in their lives after such an event. At the time of this writing, our world is dealing with the effects of the Covid-19 virus. Our nation is slowly opening, and everyone is looking to get their normal life back.

 

One of the subtle benefits of the pandemic was a lot of people were able to save in a big way. This savings rate was driven by the inability or deterrent to make discretionary purchases like eating out or going on vacation. I have seen clients surprised at how easy it is to save when taking those discretionary expenses off the table.

 

This savings rate was accelerated even more with the government stepping in and providing stimulus to the economy. Our government did this through stimulus checks, unemployment assistance, and PPP loans. The combination of limited places to spend money and government assistance has led to some US consumers having more in their savings account and personal consumer debt at its lowest levels in years.

 

This phenomenon of increased savings is not felt the same across America. Some Americans were hurt significantly by the pandemic. This can include a job loss, a business failure, and a loss of rental income.  I want to be sensitive because many people are hurting, not the least considering the health-related issues and losing loved ones.

 

With all that said, we have to address the circumstances some find themselves in with increased savings and a deep desire to recoup the lost memories and experiences. Below are the things you can consider so that you don’t find yourself revenge spending. 

 

Hold on to what you have saved

Yes, your savings are your money. Yes, I know how bad you want to go on vacation. Yes, I know you are scared you don’t know what to do when you have this amount of cash. I recommend not spending the cash you have saved to this point. Do not spend this amount and live on the money you make moving forward.

 

It will be tempting to spend that money when life pops up. Particularly if you are not used to holding that much cash. Fight every urge to use the money. Even go as far as opening up an online savings account to create some friction and limit you from spending the money.

 

This new amount saved will be your new emergency fund. Even if it is above the typical 3-month emergency fund. If you are still tempted to do something with the money, you can open up a brokerage account and invest the money so that you feel the money is doing something for you

 

Reset Your Financial Priorities

During the pandemic, we have learned to go without on a lot of the things we hold dear. Now that we have been without this is the perfect opportunity to consider never going back or significantly reducing how much you spend on that thing or activity.

 

Once you understand your priorities, I recommend allocating your money to those things. Not all at once but slowly as you try to match how you spend your money with your priorities.

 

Understand What Made You Happy

For most, this is the first time you were able to pause and re-evaluate your life. With the constant and real risk of losing loved ones, we have been able to determine what is important. Also, with a lot of free time, we have been able to ask the question, “Are we doing the things that make us happy” and “Are we doing them in a way that maximizes the enjoyment in our life.”

 

This could include seeing family more or taking that huge risk you have always been scared to do. Covid-19 has taught us how precious life is and how our actions can directly affect our neighbors.

 

I hope the above suggestions help you determine what to do with your newfound wealth. If you have decided that investing some of your savings is a priority, please click the link below to set up a time for us to talk through your financial goals