Many people who have worked hard to build wealth find it hard to spend unnecessary money on splurges even as their nest egg grows. But splurging on certain things is healthy and will help ensure that you make good choices with the rest of your finances. But how can you know when to splurge and on what? Here are five key ways to have your cake and eat it too.
1. Budget for Splurging
Rather than fighting the natural tendency to spend money on fun items, embrace it within your plans. Create a category or an account and allot a percentage or dollar amount each period specifically for spending on fun, unnecessary stuff.
2. Align Splurges to Your Values
Splurges can be smart spending, or they can be wasted money. The trick is to know the difference. Start by deciding what is important to you and what you value. If you value time, for instance, splurging on a house cleaner or personal money manager could be a great way to spend time on other things. But splurging on a luxury car may not bring you joy if it doesn't align with what you value.
3. Don't Limit Your Choices
When people talk about what is the right kind of splurge, they often downgrade splurging on material goods while espousing splurges on experiences. In truth, there is no inherently right or wrong type of splurge. A luxury home and a luxury vacation can be equally smart splurges if made for the right reasons.
4. Fund the Necessities First
The only type of splurge that really is bad is the one you cannot afford. So start by funding the important parts of your life first. This should include retirement accounts, emergency funds, sinking funds, and regular investments. Once you have these managed, spending money on unnecessary items will be stress-free.
5. Splurge for Your Future
Most splurges are focused on making today happier or more convenient. But don't overlook splurges that build a happier future. Splurging on a rental unit offered for a great deal adds money to your future. Splurging on time spent with your grandkids will create lasting memories. And splurging on the right university sets up the graduate for more career success.
To learn more about budgeting for splurges, choosing how to splurge, or keeping splurges from ruining other parts of your finances, contact a financial planner at a wealth management company. You can find the perfect balance to create a better life now and in the future.