How to Keep Revenge Spending From Ruining Your Retirement

In the first couple of months this year, thousands of workers at companies like Google and Twitter have lost their jobs. Interest rates on car loans, credit cards and mortgages are higher than ever, and inflation keeps rising. And the talk of a recession in 2023 hasn’t gone away.

All of this uncertainty can lead to what personal finance experts call a scarcity mindset, said Megan McCoy, a professor of financial therapy at Kansas State University. “We become hyper-aware of how much things cost and stop buying things we love,” she said.

If we’re not careful, though, too much skimping on our favorite lattes and takeout can backfire.

“We start feeling deprived,” McCoy said. And when we feel slighted, it’s easy to think: “Since I’m not getting X, I can splurge on Y.”

This attitude can fuel a habit: “revenge spending,” which, as the name says, is shopping to get back at someone or something that wrongs us — like a job layoff, slumping economy, relationship strife, even a global trauma like the pandemic.

Because we all grapple with life’s ups and downs, many of us occasionally spend in this way, McCoy said. A 2022 study examined consumer patterns during the height of the COVID-19 pandemic and found that negative emotions influenced people’s motivation to shop. Angry individuals reported spending to regain control, while those who felt depressed, apathetic or bored would shop to make themselves feel better.

Maria Colon can relate. In 2021, she went on a spending spree. In one fell swoop, Colon, an accountant in Chapel Hill, North Carolina, bought cruise fares for her family, airfares, tickets to Disneyland and seats at a professional basketball game. In total, she shelled out close to $10,000 — and said it felt justified. “I wanted to ‘get back’ at the pandemic for stealing my joy,” Colon said.

Too much of this behavior, however, can hurt. Ashley Agnew, a financial adviser, said you might “feel entitled to overspend on wants,” but that was counterproductive to long-term needs like saving for retirement.

To prevent revenge spending from torpedoing your retirement and other financial goals, consider some precautions.

Set Up Financial Guardrails

Colon’s post-pandemic spree wasn’t her first brush with revenge spending.

In 2006, she left her home in Puerto Rico for a new job in Miami. “I was mad at myself for moving to the U.S. and leaving my friends and family behind,” she said. To temper her sadness, Colon spent $200 a week at the mall — but because she had an annual salary of $40,000, her habit quickly turned destructive.

“In less than a year, I maxed out my credit cards,” she said. Because she didn’t have any savings, Colon took a $20,000 loan from her 401(k) account to pay off the debt, which then hindered her retirement savings for years.

It’s tougher to fritter away funds, however, when you have financial guardrails in place.

To establish boundaries, Pauline Roteta, a certified financial planner and CEO of Pasito, a financial software company, recommends following the “50-30-20 rule.” That means putting 50% of your paycheck toward needs, like housing costs and other major bills; 30% toward wants, like entertainment and eating out; and 20% toward savings goals, like retirement.

Taking this approach finally helped Colon get her finances in order. This year, she and her husband are contributing the maximum amount to their 401(k) plan and investing $7,300, the annual maximum, of pretax dollars in their Health Savings Account.

When it comes to retirement savings, Roteta suggests educating yourself about investment vehicles like an individual retirement account and a 401(k) plan. Pay attention to yearly contribution limits and income thresholds across accounts, she said. If you’re older than 50, you’re eligible to make catch-up contributions, allowing you to save even more.

Start a Splurge Account

Forbidding “pleasure spending” is like forgoing dessert on a diet, said Alex Melkumian, a financial psychologist and the founder of the Financial Psychology Center in Los Angeles. “It makes it near impossible to stick with your plan in the long term,” he said.

To strike a balance, replace rigid rules with permission to occasionally indulge. Set aside up to 5% of your paycheck each month in an account you can use for splurges, Melkumian said. For instance, if you earn $5,000, save $250 of that money in an account that can be used toward something you enjoy. It might feel counterintuitive to give yourself a budget for such expenses, but with a sense of financial freedom, you’re less likely to revert to harmful spending patterns.

Invest in Your Future

When retirement is decades away, it’s difficult to imagine how money spent today can affect one’s savings years from now. But following a simple equation like the rule of 72 can help, said Judi Leahy, a senior wealth adviser at Citi Personal Wealth Management. Simply divide 72 by the annual rate of return; the result shows how many years it will take to double your money, Leahy said. For instance, with a 6% return rate, your money should double in 12 years. Had Colon invested the $10,000 she spent, for example, she would have had $20,000 when she turns 54.

Of course, rates vary, depending on the investment vehicle, Leahy said. With fixed-income investments like Treasury bonds and certificates of deposit, you receive a set interest rate.

Investments like equities are more complicated because the returns fluctuate depending on the economic environment, Leahy said. Speaking with a financial adviser can help you decide which investment is right for you.

Seeing how your money grows can be rewarding, giving you the same burst of joy you get from revenge spending.

And while we can’t control economic uncertainties, like the threat of a recession, saving money in a cash emergency fund for unexpected expenses like car repairs and medical bills can offer some sense of security now and more financial freedom down the line.

Establish Alternative Coping Tools

With the revenge spenders she counsels, Lindsay Bryan-Podvin, a financial therapist, teaches “harm reduction techniques,” research-backed tools that can halt unhealthy behaviors.

For instance, she recommends waiting 24 hours before making an impulse purchase. That cooling-off period might illuminate the true source of our urge to splurge.

Bryan-Podvin also suggests asking yourself: What feeling(s) will shopping cultivate for me? Perhaps you’re trying to harness happiness or elicit excitement.

At the root of Colon’s most recent revenge spend was disappointment. “I was slated to celebrate my 40th birthday, but then the pandemic hit,” she said. Shopping became a way to fill a void.

When we’re distressed, simple activities like talking with a friend, taking a walk or watching a movie can stop feelings from turning into harmful actions. “Tools like these help us cope with disappointment and frustration in more empowering ways,” Bryan-Podvin said.

Find Support

Talking with a financial therapist or other professional can get you back on track. With expertise in mental health and money, these therapists can help you examine the link between your emotions and spending patterns, so you can develop healthier habits. With a little guidance, you’ll no longer risk postponing retirement to make up for extra spending, said Jonathan A. Kolmetz, a certified financial planner.

To stick with her budget, Colon now keeps track of her expenses and curtails her bargain shopping. “It’s a commitment I’ve made to myself and my family,” she said.