To Save, To Spend Or To Splurge? - Can You Have It All?

To save, to spend or to splurge? A question that many of us have asked ourselves. We’re taught that saving money is vital to protecting ourselves against future money worries but hoarding money away for a rainy day that may never come can leave us unable to get the most out of life. On the reverse uncontrollable splurging can leave us in financial ruin but spending on things we want and need can (contrary to the old saying) bring us happiness. So what’s the balance? Can we do all three?

Saving money can require a lot of discipline, especially if you are left with little expendable income at the end of each month. Put the word discipline into an online thesaurus and it will produce results such as restraint, regulation, strictness and punishment and so it’s clear why the discipline needed to save money is often seen as an unpleasant way to live. But saving money does have its benefits and everyone can benefit from having at least a small pot of savings put aside. 

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Some of the benefits of saving money: 

  • Saving money can help in emergencies
    Emergencies more often than not come up out of the blue making it very hard to plan for them. A sudden illness, car crash, unforeseen house and car repairs can all be very costly but will need attending to with some urgency, without some cash set aside you could find yourself dipping into much-needed income leaving yourself at risk of debt. It could take time to recover from a difficult financial situation. 

  • Saving money can cushion against unexpected job loss
    Being made redundant can leave you and your family in financial turmoil and a small cushion of savings can help to alleviate the pressure you may be feeling. It’s recommended that most people try to have two months salary saved up in case of a job emergency, though this figure may seem near impossible to many, even a small amount can help.

  • Having some savings can provide peace of mind
    Worrying about money can be very damaging to a person's mental health. Having savings set aside can help to alleviate this stress and give a person peace of mind.

  • Help to purchase single large expenses
    Savings can also be very valuable if you’re planning a large expense such as a wedding, buying a house or purchasing a car. You may not be able to cover these large expenses in full with your savings but you will be able to put down a downpayment, reducing the money you need to pay back in the long run and helping you to secure your purchase.

  • Savings can help you maintain a better lifestyle in retirement
    One of the most common reasons that people save is to help them in retirement. No one wants to work forever but state pensions can be unreliable and if you want to live comfortably in retirement then having savings really can help

The downside of saving money

It could be argued that there are no downsides to having savings, but there are undeniable downsides to the action of saving itself such as:

  • Saving money means less to spend in the now
    One of the main downsides to saving money is that it often leaves you with less to spend in the now meaning that you may have to say no to opportunities and activities in the hope of having them later in life. We are constantly reminded to live in the moment but this can be near impossible if we are always saving for a later date.

  • Saving money doesn’t guarantee enjoyment later
    Another key argument against saving money is that having savings doesn’t guarantee that you can enjoy them later. There’s nothing stopping you from being struck by lightning tomorrow and not living to make use of the savings you have put aside.

Fear of the future and the fact that nothing is guaranteed is one of the biggest reasons why many people struggle to, or decide not to, save money and they are very valid reasons. But is there a way to do both, can you save and spend at the same time? To answer that question we need to look first at why people tend to spend and splurge and the psychology behind it. 

Why do people spend and splurge if they know the benefit of having savings?

Many people have more credit card debt than they do savings, but why do people continue to spend if the benefits of having even a small pot of savings are so widely known?

  • Present bias
    Present bias occurs when a person places more importance on short term reward over long term gain and plays into the idea that we should live more in the moment with no guarantee of what is around the corner. The more people disregard their long term interests for short term gain the more likely they are to end up with financial problems.

  • Spending feels good
    We’ve all heard of retail therapy, well there’s truth in that statement as it has been proven that spending money can help to make people feel happier. One theory behind this is that spending allows people to picture themselves in a better life but at a scientific level our brain releases dopamine in anticipation of a reward, like that feeling of pulling out your card at the till.

  • The ease of credit cards
    Spending on a card has been proven to be easier than spending with physical cash as the brain is able to separate the pain of buying from the pleasure of purchasing -  this has made it much easier for people to spend above their means.

  • The ‘what the hell’ effect
    Have you ever noticed how after spending a little money it is easier to spend a lot? That’s the ‘what the hell’ effect and is where a minor lapse can snowball into a complete lapse in self-control and when combined with spending on a card make sit very easy to completely blow the bank.

How can we balance the urge to splurge with saving?

Well, at its core people know they need to save for their future but immediate spending feels good and they can justify it to themselves with excuses about living in the here and now.

Thankfully there are ways that you can do both.

  • Shop savvy
    Instead of making impulse purchases at high-end stores shop savvy and look for savings, this actually adds another layer of thrill to the shopping process, nothing feels better than getting that feeling of a shopping reward and knowing you saved money in the process.

  • Make use of finance offers
    There’s nothing wrong with making a big purchase such as buying that jetski you’ve always wanted, but if you do then maybe consider buying it through leisure asset finance to split out the payments and avoid eating up all of your savings in one go.

  • Sell the things you don’t use or need
    If you’re just coming out of an uncontrollable spending habit then you probably have a lot of things you don’t use lying around. Sell the things you don’t need or use, put half this money into savings and then have half to spend on things you actually need. Repeat this process whenever you have too much stuff, but remember to leave the savings untouched.

Use the 50-30-20 budgeting rule
Rather than think of spending and saving as an all or nothing mentality allocate a portion of your income to both. The 50-30-20 rule works by allocating 50% of your income to things you need such as rent, bills, food etc, 30% to things you want such as those new shoes and that dinner out and 20% to your savings for the future.

About Money & Mimosas: After a mimosa brunch with girlfriends, Danetha launched Money & Mimosas. A former NFL cheerleader turned financial journalist, she created a space to share resources on how to become rich and sexy.

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