When to Splurge and When to Save: Creating Spending Rules

In the journey toward financial freedom, one of the most challenging decisions you’ll face is determining when to spend and when to save. It’s easy to get caught up in the excitement of splurging on something you want, but it’s equally important to know when to hold back and prioritize your savings goals. Striking the right balance between enjoying life and securing your financial future is key to long-term success.

Creating spending rules that align with your values, goals, and lifestyle can help you make intentional decisions about your money. These guidelines will allow you to enjoy your purchases without compromising your future financial stability.

In this post, we’ll discuss how to create your own spending rules to know when to splurge and when to save.

1. The 50/30/20 Rule: A Simple Framework for Budgeting

One of the most well-known budgeting rules is the 50/30/20 rule, which is an effective way to balance saving and spending. The rule divides your after-tax income into three categories:

• 50% for Needs: These are your essential expenses, such as rent or mortgage, utilities, groceries, transportation, and insurance.
• 30% for Wants: This includes non-essential purchases like dining out, entertainment, travel, and shopping. This is where splurging can fit in.
• 20% for Savings and Debt Repayment: Put this portion toward your emergency fund, retirement accounts, debt repayment, or other savings goals.

Why It Works:

• The 50/30/20 rule is a flexible, easy-to-follow structure that helps you prioritize your financial needs, gives you room to enjoy life, and ensures you are saving for the future.
• You can adjust the percentages based on your specific goals or lifestyle, but having a clear structure will guide you when deciding how much to spend and save.

Example:
If you earn $3,000 a month after taxes, the breakdown would be:

• $1,500 for needs (housing, utilities, groceries)
• $900 for wants (eating out, hobbies, entertainment)
• $600 for savings and debt repayment (retirement fund, emergency fund, debt reduction)

2. When to Splurge: The Three Question Test

While it’s important to save and stay within budget, there are times when splurging is completely justified. A key question to ask yourself before making a splurge purchase is: Is this an investment in my happiness or well-being?

To help you decide when to splurge, ask yourself these three questions:

• Do I genuinely value this purchase? Will it enhance my life or make me significantly happier in the long run, or am I simply being impulsive?
• Can I afford it without compromising my savings goals? Make sure you can still stick to your budget, savings, and emergency fund contributions.
• Is this purchase something that will last? Consider how long you’ll use or enjoy the item. A higher-quality product or experience that you’ll use often is often a smarter splurge than something that will quickly lose value or appeal.

Why It Works:

• This approach helps you be mindful and intentional about what you splurge on.
• It ensures that your splurges align with your values and overall financial goals, rather than relying on emotions or impulse.

Example:
You may feel tempted to splurge on a high-end gym membership. But if fitness is a priority in your life and you know the membership will help you stay committed, it could be a worthwhile splurge. If it’s a gym you’ll rarely go to, it may not be worth the expense.

3. The 30-Day Rule for Impulse Buys

Impulse buying can be a major stumbling block when trying to stick to your budget. That new gadget, those shoes on sale, or a spontaneous vacation all seem appealing in the moment. However, by creating a 30-day rule, you can prevent impulse purchases that you’ll regret later.

Here’s how it works:

• If you find something you want to buy but didn’t plan for, wait 30 days before making the purchase. During this time, evaluate whether it’s a need or just a passing desire. You can even write down your reasons for wanting the item, and after the 30 days, assess if the urge has passed or if you still feel it’s worth spending your money on.

Why It Works:

• This gives you time to think more rationally about your purchase, potentially saving you from unnecessary splurges.
• It helps you avoid buyer’s remorse and stay on track with your savings goals.

Example:
You see an expensive pair of shoes that catch your eye. Instead of buying them immediately, you apply the 30-day rule. After a month, you realize that you don’t need them and your money could be better spent elsewhere—like adding to your emergency fund.

4. Creating Specific Splurge Budgets for Big Purchases

If you know you’re prone to splurging, one solution is to create a splurge fund. Designate a specific amount of money each month or year that’s reserved for guilt-free splurging. This allows you to enjoy big purchases without derailing your financial goals.

How It Works:

• You can set aside a fixed amount (e.g., $100 per month or $1,000 per year) into a separate “splurge” category within your budget.
• Only use this fund for non-essential purchases that bring you joy, such as travel, dining, or entertainment.

Why It Works:

• It gives you a sense of freedom to splurge while staying disciplined.
• By having a dedicated fund, you avoid using credit cards or borrowing to fund your splurges, preventing debt accumulation.

Example:
You’re planning a vacation but want to stay within budget. By setting aside $500 per year for travel expenses, you can take that trip without impacting your savings goals. You also won’t need to sacrifice other essential expenses.

5. When to Save: Prioritizing Long-Term Goals

Saving should always take precedence over short-term pleasures, especially when you’re working toward larger financial goals. The earlier you start saving, the more time your money has to grow, and the more financially secure you’ll be in the long run.

When to Save:

• High-interest debt: Pay off high-interest debt (such as credit card balances) before splurging on luxury items.
• Retirement savings: Prioritize contributions to retirement accounts to ensure your financial future is secure.
• Emergency fund: Always have a sufficient emergency fund to cover unexpected expenses, so you don’t have to rely on credit cards in times of crisis.

Why It Works:

• Prioritizing long-term savings ensures you’re building wealth, preparing for the future, and protecting yourself from unexpected financial setbacks.
• Delaying gratification can feel difficult in the moment, but in the long term, it creates a strong foundation for financial security.

Example:
You’re considering splurging on a new car, but you realize you still have credit card debt and no emergency fund. It’s better to focus on paying down that debt and building your emergency savings first before making a big purchase.

Conclusion: Finding Balance

The key to managing your finances effectively is creating a balance between splurging and saving. By establishing clear spending rules, you can confidently make decisions that align with your values and long-term goals. Whether you’re following the 50/30/20 rule, using the 30-day impulse buy strategy, or creating a splurge fund, having a thoughtful approach to spending will allow you to enjoy life today while securing your financial future for tomorrow.

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