Research has shown that as the COVID-19 pandemic waned, many people couldn’t wait to spend.1 Yet it seems the heyday of what was termed “revenge spending” is to be relatively short-lived.2

World events and a period of record high prices and inflation mean many people are feeling the need to be a little more careful with their finances right now. 

From January 2021 to January 2022, the Consumer Price Index for All Urban Consumers (CPI-U) rose 7.5 percent. This is the largest 12-month increase for 40 years. Food prices increased 7 percent over the past year, while energy prices rose 27 percent.3

With the turbulent geopolitical situation we’re witnessing, and new financial challenges, how should you navigate spending and saving?

Revise your weekly budget – upwards

Make a spending plan but be careful not to base it entirely on the last couple of years, as during the pandemic many costs, such as commuting, were avoided.

Basic expenses from pre-pandemic times, like clothes suitable to wear to an office (reluctantly putting that leisurewear to one side), are now essential again. Luckily for those of us at New York Life, our new post-pandemic relaxed dress code means we can save a bit here! 

Meanwhile, other daily costs, such as rent and energy prices, have risen for many. You might need any money you’ve saved to offset this. In some cities across the country, rent has soared over the past year by up to 40 percent, putting many renters in a difficult situation.4

Prices are also rising on many consumer goods - partly due to inflation, partly due to supply chain issues. Many sectors are affected,5 including food, furniture (due to higher container freight rates), eating out (restaurants are facing higher staffing costs) and clothing (where retail prices are expected to increase by an average of 3.2 percent this year6).

Another large increase is due to the increase in the cost of gas. This means higher bills for households, as well as for those who work in industries that use gas in their business – for example drivers and landscapers. So, make sure you allocate enough of your budget for energy bills. As COVID restrictions lift, many have rushed to book travel - but this has now been hampered, as rising gas prices have suddenly increased the cost of everything from flights to Ubers.

From stress to splurge to save

It was no surprise that people felt the need to treat themselves once their freedoms were returned. From new cars to exotic vacations, many of us made up for lost time, spending in “revenge” for what we missed out on due to restrictions and closed businesses.

According to the Bureau of Economic Analysis, in April 2020, the monthly U.S. personal saving rate (that’s the percentage of people’s income left over after taxes and spending) shot up to a record 32.2 percent (it’s usually around 6-8 percent). In February 2021, the saving rate was still high, at 13.6 percent.7According to Bloomberg, Americans saved a total of $1.7 trillion from the beginning of the pandemic through January 2021 (and that’s not including the third stimulus check).8

However, spending too much now could be harmful in the long run. Why not try to keep your good money habits going and stick with your savings plans?

Plan for some controlled splurging: set yourself spending limits or allocate a “revenge budget.” If your friends are going all out--and posting it on social media--resist trying to keep up with the Joneses. Just as in normal times, find cheaper alternatives. Remember those times in the past two years when you said how much more you would appreciate the small things in life “when this is all over?”

If you do have a little extra cash, spend on advance expenses such as subway cards, or back-to-the-office outfits (check out Poshmark or ThredUP for susatainable and cost-efficient ways to refresh your work wardrobe). You could pay off some debts or make overpayments on loans (which will also improve your credit score).

And for those fortunate enough to have put aside some funds, this could be the chance to build a better financial future.

Finally, think about upping your retirement funding. If you’re 50 or older, you’re eligible to make catchup contributions to your 401(k) or similar retirement plan. And if you are farther away from retirement age, try playing with retirement calculators to see how much you should be saving (try this one from New York Life). If you boost your savings now, you may not need to save as much the closer you get to retirement age.

This challenging period will have shown that the unexpected can happen, so keep a cash cushion for emergencies. And why not use this moment to prepare for the rest of your life? Look beyond splurging and protect your long-term plans and those you love. Having the right life insurance in place can bring you priceless peace of mind.

So, think about what your version of a happier, healthier financial future looks like, whether that includes the occasional splurge or not.

 

How Has the Pandemic Impacted U.S. Savings Rates? Gailey, Alex. 10 March, 2021. Accessed 16 April, 2021. https://time.com/nextadvisor/banking/savings/us-saving-rate-soaring/

2 Revenge spending' by the rich could drive luxury recovery.’ Frank, Robert. 13 May, 2021. Accessed 16 April, 2021. https://www.cnbc.com/2020/05/13/revenge-spending-by-the-rich-could-drive-luxury-recovery.html

3 https://www.bls.gov/opub/ted/2022/consumer-prices-up-7-5-percent-over-year-ended-january-2022.htm#:~:text=Over%20the%2012%20months%20from,month%20period%20ending%20February%201982

4 https://www.theguardian.com/us-news/2022/feb/16/renters-rent-increases-us-lease

5 https://www.cnbc.com/2022/01/01/10-things-that-will-be-more-expensive-in-2022.html

6 https://www.mckinsey.com/~/media/mckinsey/industries/retail/our%20insights/state%20of%20fashion/2022/the-state-of-fashion-2022.pdf

Personal Saving Rate Spending. U.S. Department of Commerce Bureau of Economic Analysis. 26 March, 2021. Accessed 14 April, 2021. https://www.bea.gov/data/income-saving/personal-saving-rate

8 Americans Have $1.7 Trillion to Burn in Revenge-Spending Binge. Bhasin, Kim, et al. 17 March, 2021. Accessed 12 April, 2021. https://www.bloomberg.com/news/articles/2021-03-17/retailers-prepare-for-wave-of-shoppers-as-covid-vaccines-rollout

Media contact
Kevin Maher
New York Life Insurance Company
(212) 576-6955
Kevin_B_Maher@newyorklife.com

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