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The Decision-Making Process of Spending Money or Splurging

We all spend our money on different things depending on what we value. We spend when we should have saved, and sometimes we save where we should have splurged. We make hundreds of personal economic decisions over the course of a year. We ask ourselves if we should buy generic or brand-name groceries, or if we should splurge on a coastal vacation or take an inexpensive camping trip.

In these decisions, we apply the principles of scarcity and opportunity cost. The choices we make on how to spend our money involve costs, benefits, or trade-offs, and we have an internal conversation on which of those concepts we value the most to get the biggest bang for our buck. So how do we know when to spend money effectively or when to splurge?

What is a Splurge?

The act of splurging involves spending a significant amount of money. This can be on anything, like clothes, a new car, or a vacation. In simple terms, to splurge is to indulge in some form of luxury, whatever that means to you. Splurging has a bad connotation, but it doesn’t always have to be a negative thing. Splurging has the potential to be a healthy part of your day-to-day personal finances if you understand how to budget correctly. The key is to recognize healthy splurging that's just not wasting money.

A splurge should align with your values, be convenient to you, and be affordable within your budget. It’s not required that you plan for every splurge, but it is a requirement to know that you can afford to splurge within your monthly budget. Just because you have enough money right now to buy a new laptop doesn’t mean you can afford it. If splurging compromises other important finances, like rent, it is just wasting money. The money decision-making process should help you define what is an investment.

When to Splurge and When to Save

It is up to you to define what you can splurge on and what you need to save on. It may not always be fun to save and spend money effectively, but it can be the wiser choice. Choosing a low-cost option now may save you enough money to splurge in the long run. Below are some examples of when to make the decision to splurge or when to save.

Times to Splurge

Quality. Things of quality that you know will last are great investments. This can be clothing, kitchen appliances, furniture, etc. Quality and durability are great splurging characteristics and can save you a lot of money in the long run by lasting.

Healthier food options. Spending a little extra on healthy grocery items is another smart way to spend your money. Not only will it provide better nutritional value, but cooking at home saves money rather than eating out all the time.

Times to Save

Branded items. Some brands may fall into the high-quality department, and that’s okay. However, if you are spending money just for the sake of having that brand, it’s not worth it. There are plenty of alternative and cheaper options for high-branded materials.

Consumables. If you consume something quickly and often, it may be wiser to consider the low-cost option. Things like paper towels, hand soap, and napkins can all be saving options.

Making the Right Decision

Ultimately, spending and splurging are about balance. Wise money management is key to understanding your budget, what you can splurge on, and what you need to save on. Knowing what items for you justify splurging, while also seeing the opportunities to save can protect you from financial stress.


Source: Jesse Campbell (2022) What’s the Difference Between Splurging and Wasting Money?

Source: Fulton Bank (2023) How to Spend Wisely


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