To keep your finances in check, don't buy what you can't afford, say the experts. You save up. You build an emergency
fund, max out your 401(k) contributions and never resort to carrying a credit
But when is it OK to break the rules and follow that
little voice that urges you to throw caution to the wind? For Karen Treat, the chance to take her family
of six on vacation with her extended family to Key West, Fla., was too
tempting to pass up. "It cost a
small fortune, which meant I had to dip into our savings, so I had major
reservations," says the New York City school teacher. "In retrospect, it was a
blow to our finances, but I don't regret it one minute because my mom died a
few years later, and we have the memory of that fun time with her. You can't
put a price on that."
Saying yes to spur-of-the-moment spending gets a
little more complicated when you factor in a tough economy, however. "Through
the recession and a few subsequent years, the level of money anxiety was high
and that corresponds with certain behaviors. Namely, the majority of people didn't
buy a new car or go on a family vacation, or buy new appliances," says Dan
Geller, behavioral economist and author of the "Money Anxiety Book."
point, people start to feel they deserve some compensation for all of the financial
sacrifices they've been making. After all, you only live once (or as they say,
YOLO), right? We turned to financial experts to discuss how to handle those
YOLO moments without ruining your finances.
Start with a spending decision checklist
Before you start dusting off that unused,
zero-balance credit card for a splurge, ask yourself a question, says Denise Winston, financial
expert and author of "Money
Starts Here! Your Practical Guide to Survive and Thrive in Any Economy."
"Ask yourself, 'Why do I want this so badly?' Is the emotional urge to splurge
based on something going on in your life? Are you trying to impress someone or
keep up with the Joneses?"
words, what will this purchase do for you, and is it something you can live
without? You may regret forking over $500 for that Coach handbag long
before it's disappeared in the back of your closet, says Winston, whereas an
experience you paid for might be worth every penny. In general, material things
depreciate over time and are more likely to cause buyer's remorse than a
purchase that resulted in wonderful memories or some other intangible benefit.
Next question: "What
is the worst-case scenario?" While you may plan to pay off the debt you run up, says Gail Cunningham, vice president of public relations of the National Foundation for Credit Counseling,
"Part of your decision-making process should be
to consider the ramifications if the plan falls through. Look at the worst case, and if you can live with
that, then it's probably OK to take on the debt."
That being said, you need to
know yourself and approach this question honestly. Will you be able to pay off
the debt or replenish the account you borrowed from in a responsible manner?
"We're all well-intentioned," says Cunningham, "but it's pretty serious when
you're using money that you don't have, or tapping into money you do have, such
as retirement savings."
Consider this perspective: How many hours do I need to work to pay for this? "This is a game-changer in terms of how you think about your finances," says Winston. Think
about the total cost of your purchase and divide it by your take-home hourly
pay rate. You might find that you'd have to work 20 hours to pay for a new tech
gadget; would it still be worth it?
For years, I had kids at home so I
couldn't do anything spur of the moment. Now that I have an empty nest, I think
it's important to take advantage of these opportunities as they come up.
will this purchase alter your budget? Before you pull out your credit card
or dip into your savings to go for a big-ticket item or experience, live as
if you were paying back the debt for two to three months, says Winston. In
other words, put aside the monthly amount it would cost you in an account. If
you can handle the extra expense, the purchase probably won't cause too much
havoc. And, bonus: By doing that trial run, you'll have saved some money to put
toward the initial purchase.
But, those moments ...
While the tips above are a great guide for any
financial decisions that arise, let's go a little deeper and take a look at
some of those YOLO moments -- when your heart or others around you might
encourage you to seize the day.
invited to a high school reunion in your hometown, a destination wedding or find
out that your grandmother's health is in decline, sometimes the desire or need
to travel doesn't sync up with your budget. As long as you're not having
trouble paying your bills and have some money socked away in a rainy day fund, you
can book your trip; just downgrade it a bit, says Geller. "See if you can find
a bargain, a deal, something that will give you almost what you want, but not full-blown carte blanche to spend,"
helped convince freelance writer Amy Buttell to say yes to her friends' last-minute
invitation to join them on a cruise. "I
had reservations about spending the money because I already had a trip
scheduled to London to see my son the next week and London isn't cheap," she
says. Because it was a great deal and to escape the awful winter weather in Erie,
Pa., however, Buttell decided to pay for part of the cruise from her current
income and put the rest on her credit card.
"For years, I had kids at home so I
couldn't do anything spur of the moment. Now that I have an empty nest, I think
it's important to take advantage of these opportunities as they come up," she
Treating yourself or your kids
something pleasurable keeps you going and keeps you motivated, says Cunningham.
"If you've done a good job saving, you can put some of it toward you." For
instance, if your favorite musician is doing a farewell tour in your town and
you'll be upset if you miss it, then why not go for it?
comes to the kids, however, they have a lifetime of experiences ahead of them,
so don't fall into the YOLO trap and feel obligated to splurge on every big
item or event for them. If you're going to pay for the Sweet 16 party because
"she's only 16 once," you can't then also foot the bill for the senior class
ring, the limo for the prom, etc., says Cunningham. "Consider this a teachable
moment for the child that he or she can't have it all."
course, this is also the perfect opportunity to suggest that the child earn
some money to put toward those extras. "When a child has some skin in the game,
it enhances the experience, and puts the kibosh on any sense of entitlement,"
you only live once, you don't want to feel unhappy at a dead-end job. But career advancement can be costly, whether
it's attending an industry conference that only comes around once a year,
taking a course or building a professional looking website.
financial decisions with your head, not your heart," says Cunningham. If you're
confident the investment will pay for itself in the form of higher earnings or
better opportunities, or if you can find a way to supplement your endeavor (see
if your employer will pay for some or all of it, or if there's a related tax
credit), it could be a good move for you.
Can't afford it?
Just because you don't have cash on hand doesn't
mean you're doomed to a life of frugality. "There is 'camouflage cash' hiding
in that paperwork on your desk, and stuff around your house," says Winston. You
can sell items, use your credit card rewards or maybe even trade something with
someone to get what you want without going into debt.
time you're tempted to seize the day, live in the moment or shout out the YOLO
mantra, remember that spending tomorrow's money -- money that has yet to be
earned -- can put you on a slippery financial slope, says Cunningham. "Of
course spending money we don't have with a promise to pay is the essence of
credit, and is something people do every single day," she adds. "Some just
do it better than others."
See related: Take steps to prevent bipolar card splurges