The age-old question: should you spend on something you really want, or save the money instead? Most personal finance advice is geared toward getting people to cut back on their spending and boost savings. After all, the formula for financial stability is to live within your means, spend less than you earn and gradually save and invest to maximize your long-term financial security.

But you don’t always have to turn down short-term indulgences. You just have to spend responsibly. Consider these conditions for making good spend vs. save decisions:

  1. Your basic financial needs are covered.
  2. You have an emergency fund.
  3. You’re saving for retirement.
  4. You’re ready for major life events like having a baby.
  5. You’re paying off debt.
  6. You’re spending on “experiences” instead of just “things.”

1. Your basic financial needs are covered.

A good way to ensure you’re saving enough for your needs is to set up major expense buckets. To do this, identify major expenses you anticipate in the future and assign them based on short, medium and long-term expenses. Say you think you will need a new car in three years, and you expect it to cost $25,000. Divide that number by the amount of months you will be saving for it (36) and you will find you’ll need to save $694 each month toward this goal. Not in the budget? Give yourself more time, or lower your price point.

2. You have an emergency fund.

You want to be covered for three to six months of expenses in case you lose your job or find yourself unable to work for a period of time. MoneyUnder30.com has a savings calculator to help you figure out how much you should be spending vs. saving.

3. You’re saving for retirement.

If you have nothing saved for retirement, consider holding off on big expenditures until you’re able to start putting some money away in a 401(k) or IRA (individual retirement account). Though there’s no “one-size-fits-all” approach to retirement planning, most financial advisers would recommend investing 10-15 percent of your income towards retirement, according to .

A good way to ensure you’re saving for retirement is to make savings automatic. It works like this: After you’ve set up your savings fund and calculated the savings you need to achieve your short to long-term goals, you should have that money automatically directly deposited into separate accounts for retirement. Automating the process takes the onus off you to move money every month into savings, and after a few months you’ll learn to live without the portion of your income being tucked away.

4. You’re ready for major life events like having a baby.

huge long-term expense worth weighing when deciding to spend vs. save is starting a family. According to the U.S. Department of Agriculture, it will cost a middle income couple around $233,610 to raise a child born in 2015. Here are some ways to make sure you’re prepared to foot the bill:

  • Cut unnecessary expenses: Audit your household budget and look for unnecessary expenses to cut down on.
  • Save for medical costs: Research the costs associated with childbirth and infant care, and see what your insurance provider covers. Remember that child-related costs start adding up before the baby even arrives in the world. Though it varies from state to state, the average medical cost to deliver a baby is $10,808, but care before and after delivery can reach $30,000.
  • Sell old stuff: Look around your attic, basement or garage for gently used items to sell online. These items may include clothing and shoes, sports and exercise equipment, and electronics and appliances.
  • Buy used baby equipment: Much of what your baby needs he or she will grow out of quickly. So the argument to buy second hand is compelling when raising a newborn. Look around online for lightly used strollers, playpens, clothes, and the rest.
  • Replace lost income during parental leave: If you or your spouse plans to take time off when your new baby arrives, start saving now to replace that lost income. In addition to cutting costs, you could save more for a baby by replacing some of the lost income if one of you gets a part-time job or starts a side hustle.
  • Open a dedicated savings account for baby-related expenses: Encourage family (especially grandparents-to-be) to contribute cash as gifts. Be specific about what the cash will be used for. For example, “At this time we are saving all cash gifts to use toward a new crib and nightstand for the baby.”

5. You’re paying off debt.

Some types of spending simply aren’t appropriate if you’re carrying a big debt burden. If you have debts—particularly consumer debt like credit card debt or car loans—you may want to prioritize paying those down before padding your savings account beyond an emergency fund or buying more consumer items.

There are a few different methods that can be used to pay down consumer debts:

  • The higher interest rate methodrefers to tackling debt that has the highest interest rate first. Then, once that is paid off, you focus on the debt with the next-highest interest rate. Experts suggest that the benefit to doing this is that you eliminate the most costly debt first, which can lift a huge weight off your shoulders and may save you money on interest.
  • The snowball method focuses on the smallest debt first. Once you pay off that debt, you move on to the next-smallest debt. The benefit to this method is thought to be that you may see progress a bit more quickly, particularly if you have many small debts, and it can motivate you to tackle larger and larger ones.

Ultimately, it is up to you to decide which method will work best for your financial situation. The Consumer Financial Protection Bureau offers a fantastic debt management worksheet that will help you come up with an action plan and organize your outstanding debt payments.

6. You’re spending on “experiences” instead of just “things.”

Studies have shown that spending money on experiences like travel tends to make people happier, and for longer, than spending money on material things. Memories are priceless; time with your loved ones is invaluable. So if you have a chance to take a memorable trip or have a once-in-a-lifetime experience with your family or friends — and you can pay back debt in a reasonable time frame — then maybe you should think about splurging.

It might sound strange to give yourself permission to spend money. But some people need a bit of extra encouragement to think strategically about how to get the most out of their spending experiences.

Instead of buying “things,” buy memories. Invest in spending time with your family and deepening relationships with close friends. Money can’t buy happiness, but it can help you spend more time with the people who make you happy.

So, should you focus on saving or spending? Clearly, there is no cut-and-dried, one-size-fits-all answer. Assess your personal financial situation, examine your current and future spending needs and income, and then spend responsibly in an effort to maximize your long-term financial security.

Published August 18 2017.

Updated August 13, 2020.

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