Are You A Victim Of Revenge Spending? It Can Be Brought Under Control; Here's How

Overspending is often a psychological thing. Post-Covid, many people went on a revenge spending spree, which was triggered by emotional exhaustion, milestone events, and social comparison.

After long periods of financial restraint during the pandemic, people began to feel deprived, and the desire for instant gratification became overwhelming. Promotions, birthdays, or simply overcoming tough phases led to the belief that they deserved a reward, often in the form of unnecessary purchases.

Social media, for instance, brings out constant feelings of missing out (FOMO) about the extravagant lives and assets of peers and thus heightened feelings of revenge buying.

“Dopamine, the feel-good hormone produced by the brain at the time of shopping, brought about a kind of temporary euphoria. This allowed for a degree of control; especially after quite a long history of saying "no" to oneself. The temptation to indulge in spending continues to persist because people seek to reclaim what they feel was lost in the challenging years of the pandemic,” says Nita Menezes, certified financial planner, author, and founder of Financially Smart and MoneyPrastha, a financial planning firm.

In fact, this led to the phenomenon of revenge travel in the post-Covid-19 era. People sought to make up for lost opportunities to travel during Covid-19 due to lockdown and restrictions. After being confined inside their homes for months, people booked vacations and often spent on luxury destinations, flights, and experiences that they otherwise would not be able to afford. This was despite financial concerns and often led to overspending and financial strain after the trip was over.

Such behavior was particularly noticeable after Covid-19 and can also occur after someone experiences a health issue or significant changes in their family life. Many different factors can trigger revenge spending.

Revenge spending is thus a psychological response when one indulges in excessive purchases to compensate for feelings of stress, deprivation, or restriction. It provides emotional relief and a sense of control. Plus one may be trying to achieve a social status or assert one’s self-worth. However, over a period of time, it leads to financial strain through a cycle of overconsumption that is often hard to control.

How Do You Identify Revenge Spending

It may be a while before one realizes that one is indulging in revenge spending. The first sign is that the spending is unplanned or impulsive. For example, you visit a mall and spend a fortune on a designer handbag when you have no plans to buy one. Or you exceed your budget by a considerable amount when buying a car.

The next sign is that you justify such spending with phrases like “I deserve this” or “Just this once. Also, the item is a luxury or indulgence rather than a basic necessity, and regret or guilt follows the purchase. But as mentioned, you always find reasons to justify the purchase, till the next impulsive purchase. And the cycle goes on.

Draw The Line

There are some necessary expenses, while others are not.

Necessary purchases are planned, budgeted for, and well thought out. For instance, buying groceries, paying rent, or investing in a retirement plan are considered necessary purchases. In contrast, emotional spending occurs spontaneously and without prior consideration.

Buying a designer handbag or an expensive gadget on a whim, without considering your budget or financial goals, falls under emotional spending. Nowadays, it's common to see people making such purchases for no apparent reason.

“While they may have purchased such items in the past, these purchases were often not fully thought through, which is why we refer to them as emotional spending. On the other hand, necessary spending involves items that have been carefully considered and allocated to a budget,” says Anand K Rathi, co-founder, MIRA Money, an investment management platform.

It is important to differentiate between the two and draw a line when required. While it may not be possible or even necessary to eliminate discretionary spending altogether, one needs to reign that in. This is not to say that one needs to completely eliminate discretionary spending, but one may do it if the budget permits. When spending goes out of hand or leads to a situation when one is in debt or cannot pay credit card bills on time, it becomes a problem.

Once You Are A Victim

We may fall victim to revenge spending, and that is normal. However, it is important to identify it and rectify it as soon as possible. Menezes lays down the steps one needs to follow to reign in revenge spending.

• Don't Feel Guilty And Admit The Issue: Nobody is perfect. The point is to catch the behavior and correct it.

• Assess The Damage: Calculate how much was spent over the top and how it derailed your financial goals.

• Implement A "No-Spend" Period: Commit to a few weeks of low spending to rebalance.

• Redirect Motivation: Setting savings goals linked to rewards. For example, "I will save Rs 10,000 for that splurge I had planned."

• Accountability Partner: Share your goals with a trusted friend or family member so they can keep you accountable.

Build Responsible Spending Habits

“Conversations about budgeting, saving, and living within one’s means empower young adults to build a strong financial foundation,” says Menezes. Creating a budget is a powerful tool that puts you in control of your finances. “It helps you commit to a set financial limit, whether starting a Systematic Investment Plan (SIP) or purchasing an asset requiring an equated monthly installment (EMI). By setting aside a certain amount of money, you can avoid unnecessary spending and regain control,” says Rathi.

Additionally, it's essential to clearly budget for everything and categorize your expenses into needs versus wants. If you identify a need you hadn't previously considered, you can prioritize it accordingly.

However, even after all this, one may fall victim to revenge spending. To ensure you keep a check, you can follow the steps so that you can avoid instant gratification. “Pause and Reflect and ask questions like - will this item improve my life in the long term? Use the 24-hour Rule: Delay purchasing for a day. Often, the impulse will fade and finally evaluate need versus want: A "need" supports critical goals (health, education, or income generation), whereas a "want" satisfies temporary desires that you may have,” says Menezes.