Budgeting, Personal Finance

You Can Afford It. But Should You Spend It?

flying first class

Once you reach a certain level of financial comfort, you’ll find yourself buying things you might have bypassed in your more financially strapped days. You may find yourself springing for nicer accommodations on vacation, or taking longer vacations. Maybe you buy the more expensive car with a few extras you wouldn’t have considered before. Maybe you upgrade your house, either by buying a newer, bigger one, or sinking a lot of money into improvements. While some lifestyle inflation is fine (after all, you probably work hard for the money and it’s okay to enjoy some of it), you want to keep it in check.

“But,” you’re thinking, “if I can afford it, why does it matter?” It matters because, unless you are making huge sums of money and are able to afford every single thing that crosses your radar, too many upgrades and indulgences can become problematic. Think about this: Let’s say that you make enough now to afford that $50,000 car without jeopardizing any of your other commitments. Your mortgage will get paid, your bills we be paid, and you’ll be able to contribute ten percent to your retirement fund. Great! So you trot on off to the dealership to get that car.

But there are a lot of other things that $50,000 can do, some of which you may find are more important to you than that car. If you save it, that $50,000 can be a powerful buffer between you and disaster in the event of emergency. It can also buy you the freedom to walk away from a crappy job without another one lined up. It might be seed money for the business you always wanted to start. It might be a big part of the nest egg that would allow you to retire at fifty instead of sixty. Maybe you’d like to give it to your kid to help with college. Sure, you can afford the car, but is that how you should spend the money?

Even if you’re financially comfortable, you should never stop questioning the best uses of your money. You should always be evaluating the trade-offs you’ll be making for any purchase. Sure, you can afford a lot more things, but are they the best uses of your money, or do you want to reach for even bigger dreams? Taking a vacation where you fly first class, then pay $8,000 for a one bedroom suite on a cruise might give you a wonderful experience, but is that experience going to be so great as to dwarf the two or three high quality cruises you could have had for the same money? Paying $20,000 for a new kitchen might give you a showpiece kitchen, but are you going to enjoy that kitchen as much as you would if you saved that money and used it to help you retire ten years earlier? Paying $50,000 for a car is fun, but what if you’d saved the money and used it to help you build your dream retirement house in your dream retirement location?

There’s no right or wrong here. But just as you did when you were strapped, you need to ask yourself if these are the best uses of your hard earned money. Just because you can afford something doesn’t mean that it’s the right choice for you or your family. Before you spend, stop and think about your long term goals and then see how they match up to whatever it is you can now “afford.” You might find yourself putting the cash back in the bank for another day.

(Photo courtesy of Richard Moross)

4 thoughts on “You Can Afford It. But Should You Spend It?

  1. This is a problem we’ve fallen into lately (well, this year, really). After 10 years of living well below our means, a few years back we started to ‘loosen the purse-strings’.

    First we stopped worrying about purchases that cost a few hundred dollars.

    That lead to rationalizing purchases of things that cost a few thousand dollars.

    This year we replaced 3 cars and have taken (or will take) several nice vacations.

    Honestly, at some point it became overwhelmingly stifling to worry about the small stuff when, honestly, the small stuff just didn’t matter. And you find quickly that as your income and savings escalate, what qualifies as ‘small stuff’ changes quickly.

    This is the conundrum that I suspect many affluent but frugal folks find themselves in. If you like your job and plan to continue working, what do you do with all the money? Do you keep saving more and more? To what end? Or do you start to spend a bit more? Of course then you risk ‘life-style creep’. If you take a nice vacation this year, it may feel like a let-down to not take a nicer one next…

  2. Interessting conundrum. Hmm… part of me really wants to upgrade on some furniture, but then I think “why?” What I’d really like to do is travel, so maybe I’ll down grade the furniture I’m thinking of and save some of that $ for fun travel experiences.

    Then again I think I must be really spoiled in the eyes of so many in this world who are just looking to feed their kids, so maybe I’ll down grade those travel plans and donate $ to worthy causes.

  3. Boy, does this article hit the nail right on the head.

    Last month, I caught myself having the same exact thoughts about our expenses. We have been great about living below our means and being very frugal. Saw the savings and investment numbers growing and began feeling like we could breathe a bit.

    That’s how it starts. Things that you once thought, that’s too expensive. I could add that money to our emergency savings, etc. You now start to say we’re doing okay, we can splurge, it won’t hurt us.

    Then we saw the bills began to swell and flags starting going off. So now we are pulling back because we don’t want to lose our financial freedom. Nothing is worth that.

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