As we move into a new year and you start setting new financial goals for yourself, you may be starting to think about your feelings towards saving and spending money. There is likely a point in everyone’s lives where they must decide between saving or spending money. It can be tricky, and for some people, you may even feel guilty about spending money. So, let’s have a look at ways you can decide when to save vs when to spend.
Saving vs spending for everyone
Before we delve too deeply, first and foremost, it’s important to understand that saving and spending have different meanings for different people. For one person, spending money on a new car may not seem justifiable as they may believe their current car is good enough. For another person though, they may think it’s worth buying a new car as it could be their way of saving in the long-run1. This example shows how two different people can think about the same situation of spending completely differently.
In other instances, it may not even be the concept of saving or spending that defines what you choose to do with your money. For some, the act of spending money could be tied to emotions they don’t enjoy, such as worry, so choosing to save money instead may offer them peace of mind they have money stashed away in case of an emergency1. On the other hand, another person may regard spending money as wasteful and only justifiable on items that are absolute necessities1.
Whatever the case is when it comes to you and your spending habits, it’s important not to get caught up in keeping track of what others are buying. Instead, when it comes to saving vs spending, it should be about your personal financial situation and other lifestyle factors1.
Is it a need or want?
Now let’s get into the driving force in making purchases and how you may be able to help yourself determine if it’s worth saving or spending. Generally-speaking, a need is usually a necessary justification for spending money while a want is something you could make do without. However, as we highlighted in our first point, this can mean something different to each individual.
Reflecting on your recent purchases could help you evaluate your spending habits and whether you are buying necessities or whether these items are wants. What’s important to keep in mind here, though, is that you may actually have goals, both financial and personal, which relate to the purchases you choose to make and are reasons why you justify saving vs spending money2.
For example, you may justify spending money on a holiday because the experience of visiting another country is one of your personal, lifestyle goals. Or, you may start an emergency fund because this is one of your savings goals2. As you can see, it can become tricky to determine what is a need or a want because these can have different meanings, particularly when it comes to helping you achieve your goals. The main thing to take away is ensuring all of your goals are factored into your budget; that way, your spending and saving needs and wants can be catered for.
Examples where you might spend money
While these examples may not seem like all the areas you would be inclined to spend your money, keep in mind that as we noted earlier, each person’s situation and motivations for spending money are different.
For instance, some may believe expenses that are related to maintaining or treating health conditions is a justifiable way to spend money2. These expenses may include health insurance, appointments to massage or physical therapists, or even gym memberships.
Many also regard a number of other insurances as justifiable expenses. For example, spending money to protect assets like your car, house or other valuable possessions may seem worth it considering how much you could be out of pocket if you had to pay to replace these items2.
Perhaps one other major category of expenses you may deem a reasonable cause for spending money are those big purchases you’ve been saving up for. It may seem counterintuitive to suggest spending the money you’ve worked hard to save is an acceptable means of spending; when those big purchases are a new house or new car, though, the end result is usually a justifiable means for choosing to spend money instead of save it2.
Personal spending plan
Irrespective of how you choose to spend and save your money, the most important thing you can do is develop a spending plan for yourself. The best way you can do this is by creating an accurate budget that accounts for all of your goals, both in the form of saving and spending1.
While you generally account for your regular spending habits in your budget, such as bills, groceries and other living expenses, you may not be catering for the other expenses you justify as reasonable means for spending1. For example, if making small purchases that elevate your emotional wellbeing (such as buying a coffee every week) is something you spend money on frequently, make sure you’re setting aside a certain amount of money for this expense in your budget1. Doing so will give you the full picture on your spending habits and help you ensure you do not start to develop habits that prevent you from achieving your goals.
When creating your budget and spending plan, also ensure you account for your savings goals. After all, if you have big purchases you’re saving up for, it’s important you continue to put money towards these purchases, and you can only ensure you have enough funds for this if you accurately capture it in your budget1.
If you’re looking for ways to separate your saving money from your spending money, you may like to consider one of Queensland Country Bank’s savings accounts.
Terms and conditions of Queensland Country Bank’s savings accounts apply. View the relevant TMD available at queenslandcountry.bank. Normal lending criteria, terms, conditions and fees apply and are available on request.
General Advice Warning: This information is intended to be general in nature and is not personal financial advice. It does not take into account your objectives, financial situation or needs. Before acting on any information in this article, you should consider the appropriateness of the information provided. In particular, you should seek independent financial advice.
Sources
1Currency Exchange, 2023, Financial education: Saving money vs. spending money,
https://mycurrencyexchange.com/financial-education-saving-money-vs-spending-money/
2Morgan Chaperon, 2023, Enjoy life and save money: Finding a balance that works for you, Rocket Money, https://www.rocketmoney.com/learn/personal-finance/enjoy-life-or-save-money