Are You Guilty of FOMO Spending?

Raise your hand if you’ve experienced FOMO before.

What is FOMO, you ask? The Gen Z term stands for the fear of missing out. And if you’ve experienced the effects of FOMO before, odds are you’ve experienced the phenomenon we like to call FOMO spending.

What is FOMO spending?

FOMO spending refers to when the fear of missing out adversely affects your spending habits. And it doesn’t just apply to teens who want the latest fashion trends on TikTok. Other, less obvious forms include FOMO in stocks – aka when a trader or investor is worried about missing out on a profitable opportunity – or FOMO with big purchases like a house, car, or travel.

FOMO spending can be small, or it can have huge financial consequences. Let’s take a look at some examples.

Lucy’s friends go out to dinner weekly. She wants to see her friends, so she joins them. At dinner, they all decide to book a weekend trip. A couple of weeks later, everyone is grabbing tickets to the latest music festival that’s out of town – and she doesn’t want to miss it. Before Lucy knows it, she’s spent almost $2,000 in one month alone.

Nikita scrolls on Instagram and sees a post from her best friend on vacation in Hawaii, then a photo from her brother-in-law celebrating his new job offer in Miami. The next day, her college friend group invites her to their upcoming trip in Paris. Nikita spontaneously says yes, even though she has a different income level than her friend group.

Marco’s coworkers say they’re all buying $5,000 of some new cryptocurrency stock. He goes all in with them. 2 months later, it crashes down to zero. Marco also follows a bunch of crypto wizards who make lots of money day trading and he worries he’s missing out on profits. He spontaneously decides to do the same. Unfortunately, those same stocks prove volatile, and he loses all his money.

What causes FOMO spending?

This form of impulse spending is a result of peer pressure, whether it’s obvious or not. In an age of comparison, it’s hard to see other people having fun and not feel left out. A recent study found that 48% of millennials spend money they don’t have to keep up with their friends, with 44% saying they feared missing out on a novel or once-in-a-lifetime experience. Other fears included not being invited to future activities or feeling like an outsider.

In this day and age, what we value and prioritize is somewhat different to decades past. Nowadays, we value experiences – and those experiences often cost money. The problem with that mentality is we live too much in the present – and don’t end up planning enough for the future.

So, how can you avoid overspending due to FOMO?

1. Develop a Stricter Budget

   Use a money management tool to help you see where your funds are getting the most drained. Allot a certain amount toward activities like dinner with friends each month and stick to it. Once you’ve reached your limit, try suggesting cheaper or free alternatives. Remember that budgeting is not designed to deprive you, but rather to encourage you to enjoy things in moderation. Splurging every month isn’t sustainable, so having budget reminders, visual representations of money spent, and goals in place can help you stay on track.

2. Open a Savings Account

   Want to be able to say yes to trips abroad? Are you eyeing a leather jacket? Create a savings account, and specifically name it after your goal. Then, allocate a certain amount of money toward that account every paycheck. The best thing about creating a savings account is that you don’t have to stop once you’ve hit the price point of what you were saving for. Rename your account after your next wish and continue to save. This will allow you to say yes to spontaneous events like a concert or weekend trip, as well as help you save for bigger goals like a new car without breaking the bank.

   Our biggest tip for opening a savings account is to choose one with a high APY. This will help you to earn interest on your money, so you can build up your savings even when you’re not contributing money! High-yield savings accounts are a game changer, so be sure to take advantage of them.

3. Delete Your Instagram

   Alright, so maybe you don’t have to go that extreme. But trust us when we say that social media is bad for your bank account. Comparison is the thief of joy – don’t let yourself get tricked into purchasing certain items or experiences just because you feel left out. Social media can make anything look glamorous, so don’t think too hard about that night out you didn’t attend. Limit your exposure so you can avoid targeted ads, influencers, or even your own friends’ posts.

   And if you really have to get that Insta-worthy picture, try some lost-cost activities like a trip to the beach or a picnic in a field. Experiences don’t always have to come with a high price tag.

4. Get Comfortable Saying ‘No’

   Emotional spending is never a good idea, so try to get to the root cause of things. If you’re worried about not getting invited to future events, be honest with your friends about your concerns. Impulse buying is something a lot of people struggle with; you may find you’re not alone in wanting to cut back on spending.

   Also, try to keep a realistic perspective and only spend money on the things that are truly important to you. If you’re going to forget about it within two weeks, odds are it wasn’t worth the money. The more practice you have, the better you’ll get at recognizing when you’re “FOMO spending.”

Look to the Future

Finances are all about balance. Enjoying your present is key – but it doesn’t mean that you can forget about planning for your future. Don’t let FOMO spending stop you from achieving future financial success. Take control of your spending habits and your future self will thank you.

Are You Guilty of FOMO Spending?

This blog post was published by Axos Bank on April 13, 2022 and last updated on April 13, 2022.