Are You Going Overboard With Revenge Spending?

The term ‘revenge spending’ gained popularity every time there has been a lockdown in India. According to various media reports, be it travelling or buying luxury items, revenge spenders fuelled the 2021 consumer boom. With various restrictions on international travel, there was heightened interest in shopping and domestic travel. If you, too, are revenge spending or are on the verge of it, beware of the financial pitfalls.

Lockdown And Revenge Spending

People tend to buy more essential items if there is a lockdown as they try to stack up at home fearing shortage in stores. “Fear of lockdown will mean people hoarding things that are basic or essential. But when one starts shopping, we may end up buying non-essential things also. So, we end up revenge shopping,” says Sachin Parekh, a certified financial planner and owner of SNPFP, a financial planning firm. As various financial planners pointed out, a lockdown forces people to spend time alone, which may lead to revenge spending in order to substitute the gratification they otherwise get from social gathering, with material things.

Are You Revenge Spending?

You are revenge spending if you cross your normal budget or requirement. This especially happens in discretionary categories such as fine dining, expensive clothing, travel, entertainment and luxury items. “If you see your credit card dues increasing and payments piling up, then you know that your spending has gone up significantly,” says Anup Bansal, chief investment officer, Scripbox, a digital wealth management service firm. Growing credit card dues, running out of savings and spending more than your monthly average are some of the bold signs that indicate that you are into revenge spending.

Financial Pitfalls Of Revenge Spending

While people are still trying to cope with the new normal after the pandemic hit the globe, many are also facing pay-cuts and job loss. Amidst such financial challenges, revenge spending can further complicate the situation. Some of the major pitfalls of revenge spending include:

Reduced power to save: Revenge spending burns out an individual's power to save. “Losing your saving power forces you to take unwanted loans to cover the extra expenses, causing extra stress,” says Parikh.
Falling into debt: Among the biggest dangers of revenge spending is becoming an impulsive and habitual spender. Some may even start borrowing money regularly either through credit cards or personal loans for expenses. “With interest rates being low on fixed deposits and debt instruments, many lenders are willing to offer loans on P2P (peer to peer) platforms to borrowers. Easier access to credit may lead a habitual spender to not only compromise his/her financial goals but also fall into a debt trap,” adds Bansal.
Compromise on financial goals: As pointed out by financial planners, revenge spending often leads to compromising on financial goals and that eventually affects the financial freedom of an individual.

Ways To Avoid Revenge Spending

With work-from-home, lockdowns and other restrictions imposed due to Covid, many individuals may be tempted to revenge spend. But taking some precautionary measures will help you stay away from these avoidable financial challenges.

Keep an eye on the budget: “Regularly review your credit card and bank account statements and check your expenses against your budget. If you have not set a budget, then compare your recent expenses against last one year's expenses for any unplanned or increased spending," suggests Bansal.
Track expenses: One way to keep track of expenses is to use a mobile apps that automatically categorise expenses. Many credit card issuers show spending patterns. Check that to see what are the non-essential expenses.

Set limits: It is now easy to set limits on both credit and debit cards. Lower that limit is you see yourself going overboard with spending. You can also opt for prepaid cards, which are a way to take away the decision from your hands.

It may be challenging for many to keep up financial discipline in a lockdown-like situation. If self-help doesn't work, one can always take the assistance of professional financial advisors to stay far from revenge spending, which is nothing but pleasure today, pain tomorrow.