One of the greatest misconceptions is that people who are financially savvy don’t splurge on themselves or their families. My response to people who feel this way is “what’s the point of creating an abundance of wealth if you’ll never spend it”? While being focused on your finances means you need to have discipline, this is the exact reason people like this are able to splurge. They plan their expenses and account for the fact that they’ll want to take a nice vacation or buy a vacation home. They just set themselves up to be able to do it in a smart way.
So what are the guidelines to when you should and shouldn’t splurge on yourself? The answer is that there are no clear guidelines. Everyone has different passions, and where you go above and beyond should reflect the things you enjoy. Some people love to travel the world and experience new places. Others would prefer to buy a nice car or upgrade their house with the finest finishings. The commonality between these purchases is that they provide value to the beholder.
Another point to consider is that you can splurge, and do so in a way that that is financially beneficial to you. By planning out where you want to spend your money, you can devise a strategy that’s going to allow you to do it in a meaningful way. Let’s go through some different situations where you might want to splurge:
You Just Want To Enjoy Yourself:
Let’s get the cat out of the bag. Sometimes, you just need to enjoy your hard earned money, and there is nothing wrong with that. It’s important sometimes to take a vacation with family and friends or buy yourself that watch you’ve always wanted. Sometimes, there is no replacement for spending some money to ease your soul.
One of the fondest memories of my life was going all out for my marriage and honeymoon in Hawaii. Would I normally stay at a resort and spend $16 on a single drink or $200 every night on dinner for two? Absolutely not. But this was a special moment in my life and I didn’t want to have to think about anything but enjoying the experience with my wife. We could have certainly done the trip in a more budget-friendly way, but if we had gone too overboard with that, it wouldn’t have felt as special. This was a once-in-a-lifetime experience that we wanted to treat as such.
Now, does that mean we bought first-class airfare or did copious amounts of luxurious shopping on this trip? No. We still had a budget and we prioritized where we spend it. Instead of $2,000 for six hours in a first class sweet we upgraded to an Ocean View Suite for 10 nights. Splurging doesn’t mean you forgo any sense of financial accountability. We just defined what was going to be important to us and spent accordingly.
Your Splurge Is Actually a Good Investment:
Rich people often have vacation homes, but you don’t necessarily need to be rich to have one. If you’re able to pull enough money together for a down payment and the conditions are right, you could potentially own a luxury vacation home without having to fully fund it yourself. It might even be profitable!
Whenever I go on vacation, I am always amazed by the amount of different properties that are available to rent on AirBnB. What’s even more fun to think about, is behind each one of these rentals is an owner. These are people that get to own a vacation property somewhere, but pay for it by renting it out to visitors for the 49 weeks a year they are not using it.
Not every vacation property is going to be a good investment, and you have to consider things like lawsuits and maintenance. Don’t let this scare you though. If having a retreat somewhere is important for you, this is a great opportunity for you to have a place of your own without having to shoulder the burden entirely on yourself.
You’ve Got More Money Than You Need:
This is one of those situations I think we all wish we could be in! While it seems intuitive, it’s a really important point. There are some people that do such a good job planning for retirement, they actually have more money than they know what to do with. Do you really want to pass away with an exorbitant amount of moneyleft over that you didn’t get to spend?
This is one of the reasons budgeting and planning is so important. It’s not just about making sure you have enough money, but it’s also about understanding when you have more money than you need so you can allocate it appropriately.
Another situation where this may be applicable is when you have a major windfall of cash. I recently was talking to someone moving away from California. They were going from a high cost-of-living area to a low one. As a result, they had a significant amount of equity from a high-cost home that they were going to be able to allocate to a new place where housing was much cheaper. In this situation, it may make sense to buy a higher end home. You may even be able to swing it without needing a mortgage!
At the end of the day, splurging in and of itself is not a bad thing. It’s one of the benefits of having a good financial plan. When you understand your budget, and prepare for the future, you put yourself in a situation to spend on the finer things in life. Sometimes, those purchases will be just for enjoyment and other times they wil be good investments. Either way, you need to enjoy your hard earned money, and do it in a way that’s smart and fun at the same time.
It is important to enjoy the fruits of your labor, and as Patrick points out above, allowing yourself to enjoy what you work hard to earn is incredibly important. We toil away at work for more than the basic necessities. We do so to provide ourselves and our families comfortable lives above basic. “Above basic” should, and does, include enjoying treats, upgrades, and nice-to-haves.
In my view, the line to draw is that between enjoyment and overindulgence. Where you draw that line determines whether or not you are wasting the money that you have worked so hard to earn – creating a hole in your personal finances that you’ll need to refill with hours of your time spent working.
Enjoyment is about spending your money on things that provide you with significant value and benefit. For some this is about experiences, for others, travel, and for others still, items.
Personally, I enjoy spending money on power tools. Not because I value the tool itself, but rather I value what the tool allows me to create. Most recently, the band saw I purchased allow me to create a kitchen stool for my child. I enjoyed the time in the shop on the project, and enjoy the smile my daughter gives me whenever she “helps” cook!
If you find yourself splurging just for the sake of splurging, you’re wasting your money. For example – if you buy a Rolex to celebrate an accomplishment, but you typically wear a $30 Timex (as I generally do), you will probably regret the splurge shortly after receiving your credit card statement.
Splurging isn’t about splurging for the sake of it. If done correctly, it’s a way to treat yourself in a manner that will increase your happiness. Budgeting for this type of expenditure is key. Knowing that you’re setting aside a certain amount of money each month can help build excitement and create an ever bigger feeling of satisfaction when you finally spend the money on yourself or for your family members or friends.
Splurge occasionally, sure. But splurge responsibly.