During the pandemic, consumer spending habits changed dramatically. Instead of going out to restaurants, movies, or sporting events, we turned to baking, Netflix, living-room workouts, and Animal Crossing.
And while we were still spending money, we were doing a lot less of it. For many consumers, spending halted when they found themselves unexpectedly laid off or precariously employed. Meanwhile, those who were lucky enough to keep their jobs saved a record amount of money. After all, sourdough yeast is a lot less expensive than a plane ticket, and with non-essential businesses closed, there wasn’t much to do.
But now, as vaccinations roll out, businesses reopen, and the weather turns warmer, people are feeling the urge to splurge. A recent survey from McKinsey & Company found that more than 50% of US consumers feel pandemic-fatigued and intend to treat themselves to make up for it, and discretionary spending is on the rise.
But not everyone is splurging to make up for lost time. For some, the pandemic acted as a much-needed financial reset and allowed them to form new, more-frugal and budget-savvy habits that they intend to take with them.
In either case, spending has drastically changed as a result of COVID-19.
At the start of the pandemic, spending patterns changed rapidly as consumers stocked up on items like Lysol, hand sanitizer, and, of course, toilet paper. People also bought more groceries, vitamins and supplements, coffee, and hair coloring products. And since we were all suddenly hanging out inside, there was a drop in cosmetics and sun care purchases.
Last year also saw a rise in e-commerce, with more people shopping online than ever before. In the US alone, consumers spent $211.5 billion on e-commerce during the second quarter of 2020—up 31.8% from the first quarter, according to the US Census Bureau.
One trend that may stick around is the “homebody economy.” During the pandemic, without the need (or ability) to leave their house, people felt more compelled to make their homes more enjoyable. According to McKinsey, 28% of consumers renovated their homes or added a gym or office, while 19% changed their living situation altogether.
Even post-pandemic, 30% still plan to splurge on items for their homes, and spending more time where you live appears to be an ongoing trend. Though restaurants and gyms are open, many consumers plan to continue using restaurant curbside pickup and digital health-and-wellness tools for their at-home convenience.
At the same time, people are eager to start spending money outside the house, too. Around 30% say they’re going to drop more on eating out at restaurants, travel, and entertainment that doesn’t involve a couch.
As the world emerges from hibernation, consumers are ready to release some pent-up spending energy—otherwise known as revenge spending. The National Retail Federation estimates that retail sales will jump between 6.5% and 8.2% in 2021—the fastest growth the US has seen since 2004.
The desire to revenge spend is understandable. We’ve been stuck inside all year, wearing the same pair of sweats and missing out on our favorite experiences. Spending money on new things—whether that’s a splurge outfit, restaurant, or vacation—can make us feel like we’re filling a void. And social media ads don’t help.
But going overboard isn’t going to make up for that terrible year—and in fact, it could do real damage to your finances.
If this past year taught us anything, it’s that life is unpredictable and having an emergency fund is crucial. Approximately 30 million Americans collected unemployment benefits during the pandemic. As of March 2021, 56% of US consumers reported living paycheck to paycheck, and 48% say they’ve experienced unexpected financial setbacks during the first few months of this year.
Saving for an emergency fund doesn’t have to mean missing out on all the fun. But it does mean striking a balance between immediate gratification and protecting your future self. Being mindful of your savings goal can help you make more healthy spending decisions, even in the face of temptation.
Set aside a portion of every paycheck for your savings account, necessities, and fun. Your savings account will still grow, and you won’t feel like you’re missing out.
One of the best ways to ensure you don’t go overboard on discretionary purchases is to create a budget and stick with it.
A budget can help you cut down on impulse buying and make smarter decisions about where your money goes. Beyond that, budgets are a great way to maintain peace of mind about your finances as you work toward your long-term goals—perhaps retirement, a new home, or that family vacation you’ve always dreamed of.
If you want to connect more deeply to your budget, give values-based budgeting a try. This kind of budgeting helps you ensure that you’re allocating money to what’s most important to you. For instance, you may value exercise and feel as though you’d truly benefit from a home-gym setup, yet most of your discretionary spending is going to food delivery and ride-sharing apps. Once you acknowledge your spending isn’t in line with what you really want, you can adjust accordingly.
One of the best things about committing to a budget is seeing how much you’re saving. Set a goal for the amount you want to save each month and if you repeatedly hit that goal, reward yourself with something meaningful.
The data shows that we’ve been spending less and saving more this past year, with pretty amazing results. If you’ve learned to live with less, consider what it could mean for your finances if you kept that momentum going.
In fact, living below your means is a tried and true strategy for people who want to reach extraordinary financial goals—like retiring early. Consider gamifying your non-spending. For example, setting a savings goal for each week or month. Or logging each time you were tempted to spend money and didn’t—then adding that all up at the end of the month.
And of course, take the time to research healthy spending habits that you might want to add to your repertoire. You’ve already come so far—what else could you accomplish if you really focus on this?
It’s understandable to want to blow off some steam after this past year. But if you’re not careful, you could undo any good spending habits you developed during the pandemic. Being mindful about your spending means you can catch up on what you missed the most while still working toward your short and long-term financial goals.
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