How to Decide: Save or Splurge?

Are you trying to save money and build a better financial situation? If you are, you may have asked yourself the question “Can I afford to splurge on this?” This question: “how to decide: save or splurge” comes up a lot in my own financial journey. Read on to discover three questions I ask myself to decide if this splurge is worth it. 

In this article, I’m going to outline my own process for “how to decide: save or splurge”. This process involves asking myself three questions and then deciding whether or not to spend money on an item or service. I’m also going to give you examples of three areas where I routinely save money, and three areas where I allow myself to splurge. 

So read on to learn a little more about my process for how to decide: save or splurge!  

You can also check out the video I made on this subject here.

Three Questions I Ask Myself to Decide: Save or Splurge 

Question #1 – Do I have a comfortable emergency fund? 

Many financial gurus suggest a specific number for an emergency fund. Dave Ramsey mandates a $1,000 starter baby emergency fund as his Baby Step #1. This is a great place to start. The first step in my decision making process is figuring out whether I have enough of an emergency fund to cover any unexpected or unplanned expenses. 

It’s key to remember that life throws curveballs. A good financial plan will prepare for those curveballs. It’s great to have a bit of fun every now and then, but that fun will be less enjoyable if you can’t cover an unexpected expense that comes up. 

For example, if you want to splurge on a new couch. You’ve saved for a new couch and now you are excited to have this new, exciting splurge. However, the next day your refrigerator breaks. If you don’t have an emergency fund to cover this unexpected expense to repair or purchase a new refrigerator, the new couch isn’t going to feel as good.  

Question #2 – Can I afford this item and comfortably cover my monthly bills? 

This should be fairly obvious, but before you go out and splurge, make sure you can cover your monthly bills and obligations. A splurge is only fun if you know that you are financially sound afterwards. It may be difficult to go restrain yourself 

Question #3 – Will this contribute to my overall happiness? 

The last question is to ask how much this splurge will contribute to your overall happiness. Thinking about happiness is the last question in the “how to decide: save or splurge” process. Happiness is important, but if you really take time to consider, the best things in life are free. However, there are some cases where a splurge here and there will actually improve the overall quality of your life. For example, vitamins, good quality food, and experiences. 

To offer you some examples of places where I save, here are three categories where I routinely invest time to save money.  

Three Areas I SAVE: 

Meal prep/cooking

I love grocery shopping and budget shopping. Strolling the supermarket aisles makes me feel calm and peaceful, so I have no problem spending some time looking for good deals on groceries. I also enjoy planning, so I love a good meal prep session. Every now and then I’ll do a freezer cooking session, or prep meals for the week. It saves me time and money and helps me to eat a bit healthier too. 

Clothing

Getting a good deal on good quality clothing gives me joy. I also sell quite a bit of my used clothes in order to fund new purchases and make a bit of profit as well. I enjoy keeping current on trends and styles, so I am always on the lookout for good deals on quality brands. This is an area where I am happy to set myself a strict budget and stick to it.     

Car/Transportation

As long as I get there safely, I don’t care what I’m driving. My current ride is a 2004 Toyota Camry with 200,000+ miles and I consider this my “millionaire next door” car. I maintain a strict maintenance schedule and I carry AAA coverage in case of any breakdowns. This car has allowed me to forgo a monthly car payment and I fully intend to keep up this “paid off car” trend.  

Three Areas I SPLURGE: 

Hair Cut and Color

It is possible to save on haircuts and hair color. I have definitely had my share of DIY haircuts and dye from a box. However, every now and then, I treat myself and go for a full out salon treatment. I do this a maximum of one to two times per year and I have decided that it’s work it because I look at myself in the mirror every day.   

Cleaning service

Now that I work from home it’s even more important to have a clean and tidy work space. In the past, I’ve spent two to three hours on a Saturday cleaning my home and while I am perfectly able and willing to clean my house, I’ve found that my hours can be invested in other areas that might help me increase my income.

I just recently started splurging on a cleaning service every two weeks. When my cleaning professional visits my home, I’m happy to clear out for two hours and go work from the library. I get some time out of the house, while contributing to the overall economy. Then I get to come home to a beautiful space that’s clean in places I could never reach. 

Handbags 

Handbags are a hobby for me. If I’m going for a big splurge for myself, this is where I look. As my appreciation for fashion, I enjoy researching bags and appreciating style and history. Less than once a year, I will save up and splurge on a collector piece for myself.   

BOTTOM LINE: 

Overall, it’s important to make sure that any splurge fits within your overall budget. Make sure that any splurges fit within your monthly obligations. Look for areas where you can cut back ruthlessly in order to balance out your spending.