I know, I know.
We all love a little luxury in our lives.
Who doesn’t love the feeling of treating ourselves to something special?
But, let’s face it. It can be easy to get caught up in the hype. And overindulge in luxuries that ultimately put us in debt. And derail our savings (or investment) goals.
Well, don’t worry. There’s a way to enjoy luxuries without sacrificing your financial well-being.
In today’s article, I’ll:
- Be diving into the definition of luxury
- Explain the fine line between wants and needs
- Go over the consequences of overindulging in luxuries
- And provide strategies for enjoying luxuries without breaking the bank
So sit back, relax, and let’s dive in.
What you'll learn:
⓵ Defining luxury
Luxury, huh?
You know, it’s funny how different people have different ideas of what luxury really is.
For some, it’s a designer handbag. For others, it’s a fancy car or a luxurious vacation.
But I like to think of luxury as something that isn’t essential. But sure makes life a whole lot sweeter, you know what I mean? It’s all about exclusivity, prestige, and status.
❖ Now, what is it that draws us to luxury goods?
Experts say it’s the psychological appeal of owning something that is exclusive and out of reach for most people. Think about it, when you own something that’s hard to get, it makes you feel special, successful and fulfilled.
Plus, it gives you a sense of social status. And that’s why many people are willing to pay a premium for a luxury product.
Examples include designer clothing and accessories, high-end electronics, expensive cars, and deluxe vacation homes. But luxury is not limited to material possessions. Luxury can also be about experiences. Like a spa day, or a fancy dinner at a Michelin-starred restaurant. Or a private jet charter.
Luxury travel, for example, is becoming an increasingly popular trend. Because people are willing to pay a premium for unique and exclusive travel experiences.
Hey, listen, luxury is a relative concept and can vary depending on one’s personal financial situation. For some, a luxury item may be a designer handbag, while for others, it may be a new car or a vacation home. What may be considered a luxury for one person may be essential for another.
And you know, luxury has evolved with time and technology. It’s no longer just about things. For example, the rise of digital platforms like Netflix and Amazon Prime Video has changed the way we define and consume luxury.
Subscribing to these platforms can be seen as a luxury. As it offers access to exclusive content and a wide variety of entertainment options.
Onwards.
⓶ The fine line between wants and needs
Alright, let’s talk about the fine line between wants and needs. I mean, we all have wants and needs, right? But, it can be easy to mistake one for the other. Understanding the difference between the two is crucial for making smart financial decisions. And reaching your savings goals.
So, let’s define it.
❖ What are needs?
Needs are the things that are essential for survival and well-being. Like food, shelter, and clothing. These are the basic necessities of life that we cannot live without.
❖ What are wants?
Wants, on the other hand, are the things that we desire but can live without. They are the extra things that make life more comfortable (or enjoyable). Like a brand-new car, a designer handbag, a gold Rolex, or a luxurious vacation (or the latest iPhone with 27 camera lenses 😀 ).
Now, here’s a tip. Next time you’re about to make a purchase, ask yourself:
“Is this a want or a need?”
And if it’s a want, ask yourself:
“Can I live without it?” and “Can I afford it?”
If the answer is yes, then by all means, go for it!
But if the answer is no, then maybe it’s best to hold off on that purchase. And consider if there are other more important priorities (or goals) that require the money.
Another thing to keep in mind is that needs can also be disguised as wants. For example, a new car may seem like a want. But if your current car is unreliable and unsafe, then it could become a need (for safety and transportation).
To further help distinguish wants from needs, it’s important to set a budget and stick to it.
Prioritize spending on needs and make sure that you’re not overspending on wants.
It’s also a good idea to create a savings plan and have specific financial goals in mind. By having a clear understanding of your financial situation and goals, it will be easier to determine whether a purchase is a want or a need.
And remember: distinguishing between wants and needs is crucial when it comes to making smart financial decisions and reaching your savings goals.
By being mindful of your spending and prioritizing your needs, you’ll be able to make the most of your money and reach your financial goals.
Moving on.
⓷ The luxury trap: Falling into the habit of excessive spending
Okay, so we’ve talked about wants and needs. And being mindful and prioritizing goals.
But let’s be real. Sometimes it’s easy to fall into the bad habit of excessive spending.
I mean, who doesn’t go overboard every once in a while?
But here’s the thing. When you constantly indulge in luxury purchases, it can become a trap. You start to think that you need these luxury items to be happy. And before you know it, you’re spending more money than you can afford.
It’s important to recognize when you’re falling into the luxury trap. And to make a conscious effort to break the habit of excessive spending. Because, once you taste the honey, it becomes addictive.
One way to do this is by setting limits and sticking to a budget. Another way is by practicing delayed gratification and waiting a certain period of time before making a purchase.
It’s also important to be aware of the emotional triggers that lead to excessive spending.
Are you feeling stressed or down? And turn to shopping as a form of instant gratification?
Or, are you feeling the pressure to keep up with the Joneses and buy certain luxury items to fit in?
By being aware of these triggers. And making a conscious effort to break the habit of excessive spending. You can avoid falling into the luxury trap. And make better financial decisions.
And remember: it’s okay to treat yourself every once in a while. But it’s important to do it in a responsible and sustainable way. That way you can enjoy the luxuries without sacrificing your savings (and financial goals).
⓸ The consequences of overindulging in luxuries
❖ The financial impact of luxury spending
Luxury spending can have a significant impact on your finances.
Oh really? Shocker…I know.
Luxury items are (almost) by definition more expensive than their non-luxury counterparts. And purchasing them can put a strain on your budget.
This can lead to a lack of funds for more important expenses (such as savings, investments, and bills). Additionally, luxury items often depreciate in value over time, which means that the money spent on them isn’t an investment. But a cost.
❖ Impact on savings goals and overall financial health
Overindulging in luxuries can negatively impact your overall financial health. When money is spent on luxury items, there is less money available to put towards savings and investments.
This can make it harder to achieve financial goals. Such as saving for retirement or buying a home.
Additionally, constantly spending money on luxury items can lead to a cycle of debt, which can make things even worse. It can become a vicious cycle.
❖ Examples to avoid
Overindulging in luxuries can lead to financial problems in a variety of ways.
For example, a person who constantly buys designer clothing may find themselves struggling to pay their bills or save for retirement.
Similarly, a person who frequently buys expensive cars may find themselves in financial trouble if they can’t keep up with the payments.
Another example is a person who is struggling with credit card debt and is unable to pay off their balance because of luxury expenses.
⓹ Making smart financial decisions
Alright, so we’ve covered a lot of ground so far. And now it’s time to talk about making smart financial decisions.
I mean, that’s what it’s all about, right?
Making the most of our money and reaching our financial goals.
❖ Know your numbers
First and foremost, it’s important to have a clear understanding of your income, expenses, and overall financial situation. This will help you create a budget and set financial goals.
❖ Prioritize your spending
Another important step is to prioritize your spending. Make sure that you’re not overspending on wants and that your needs are taken care of. It’s also important to have a savings plan and make sure that you’re setting aside money for emergencies and future expenses.
❖ Avoid bad debt
Another thing to keep in mind is to avoid debt as much as possible. And to pay off any existing debt as soon as you can. High-interest debt, such as credit card debt, can quickly spiral out of control and can make it difficult to reach your financial goals.
❖ Be mindful
It’s also important to be mindful of your investments and to diversify your portfolio (think stocks, real estate, and even your own business). This will help to minimize risk and ensure that you’re making the most of your money.
Remember, making smart financial decisions takes time and effort. But it’s worth it in the long run.
By:
- being mindful of your spending
- setting financial goals
- and making smart investments
You’ll be able to make the most of your money and reach your financial goals.
⓺ Valuing your time and money
You know, one of the best ways to make smart financial decisions is by thinking about money in terms of time.
I mean, think about it. Our time is valuable and limited.
So why not make the most of it?
Let me give you an example. Let’s say you’re thinking about buying a new phone that costs $1,000. Now, if you make $25 an hour, that means you’ll have to work 40 hours to afford that new phone.
Is it really worth 40 hours of your time?
Or, would it be better to spend that time on something else?
Another example. Let’s say you’re thinking about taking a luxurious vacation that costs $5,000. Now, if you make $20 an hour, that means you’ll have to work 250 hours to afford that vacation.
Is it really worth 250 hours of your time?
Or, would it be better to save that money for something else?
See, thinking about money in terms of time, helps you put things in perspective. And make better financial decisions. It helps you understand the true cost of a purchase. And how it relates to your time and effort.
Now, I’m not saying you shouldn’t treat yourself (or enjoy life). But it’s important to be mindful of your spending and prioritize your needs. By valuing your time and money, you’ll be able to make the most of your resources and reach your financial goals.
Next.
⓻ Staying motivated and on track
Okay, so we’ve talked about a lot of things related to saving and making smart financial decisions. But it’s not always easy to stay motivated and on track. I mean, let’s be real, sometimes it’s hard to resist the temptation of indulging in luxury purchases (and giving up on our savings goals).
That’s why it’s important to have a plan and set clear goals. By having a specific plan and a clear understanding of what you’re working towards, it will be easier to stay motivated and on track.
❖ Choose your surroundings carefully
Another tip is to surround yourself with positive influences. This can include friends and family who support your financial goals. Or a community of like-minded individuals who are also working towards financial independence.
❖ Find an accountability partner
It’s also helpful to have accountability partners. Whether it’s a financial advisor. Or a friend who you check in with regularly to discuss your progress and challenges.
❖ Cut yourself some slack
And don’t be too hard on yourself if you slip up or make a mistake. It’s important to remember that achieving financial independence is a journey. And it’s normal to have setbacks. The important thing is to learn from your mistakes and stay focused on your long-term goals.
⓼ Additional points to consider
One important aspect to consider is to have an emergency fund. It’s a good idea to set aside a certain amount of money for unexpected expenses. Such as a medical emergency or a job loss. Having an emergency fund can provide a safety net and help you avoid going into debt.
❖ Compound interest
Another aspect to consider is the power of compound interest. It’s the process of earning interest on top of interest. And it can have a significant impact on your savings over time. By starting to save and invest early, you’ll be able to take advantage of compound interest. And watch your money grow.
❖ Automate your savings
Automating your savings is another strategy to consider. By setting up automatic transfers from your checking account to your savings account. You can make saving a habit and ensure that you’re consistently setting aside money for your financial goals.
❖ Spend less than you make
Lastly, it’s important to remember that financial success is not just about making money. But also about living below your means (spending less than you make). By being mindful of your spending, making smart financial decisions, and sticking to a budget, you’ll be able to reach your financial goals and enjoy a comfortable life.
⓽ Top 6 quotes on wants vs needs
“The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind.”
— T.T. Munger
“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”
— Robert Kiyosaki
“Frugality includes all the other virtues.”
— Cicero
“The first step to getting the things you want out of life is this: Decide what you want.”
— Ben Stein
“Wealth is not about having a lot of money; it’s about having a lot of options.”
— Chris Rock
“A budget is telling your money where to go instead of wondering where it went.”
— John C. Maxwell
⓾ Top 5 books on wants vs needs
“The Art of Possibility: Transforming Professional and Personal Life” by Rosamund Stone Zander and Benjamin Zander
This book explores how to shift from a mindset of scarcity to one of abundance and possibility. And how to create a more fulfilling and meaningful life. It covers how to change one’s relationship with money and luxuries. And how to make conscious choices about spending.
“Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence” by Vicki Robin and Joe Dominguez
This book provides a comprehensive program for achieving financial independence and living a more meaningful and fulfilling life. It covers how to track expenses, create a budget, and invest for the future. Also provides strategies for changing one’s relationship with money. And how to be mindful of spending on luxuries.
“The Overspent American: Upscaling, Downshifting, and the New Consumer” by Juliet Schor
This book is a sociological examination of consumer culture in the US and how it has changed over the past few decades. It examines the rise of consumer debt, the impact of advertising and marketing, and the cultural and psychological reasons behind excessive spending.
“Spend Shift: How the Post-Crisis Values Revolution Is Changing the Way We Buy, Sell, and Live” by John Gerzema and Michael D’Antonio
This book examines how the economic crisis has led to a shift in consumer values and behavior. It covers how consumers are becoming more value-conscious, more socially responsible, and more interested in experiences rather than material possessions.
“The Soul of Money: Transforming Your Relationship with Money and Life” by Lynne Twist
This book is a memoir and guide that looks at the emotional and spiritual aspects of money, and how to change one’s relationship with it. It covers how to break free from the money traps and to live a more fulfilling life by re-evaluating one’s relationship with luxuries and spending.
⑪ Tips for students, young professionals, and retirees
While the concepts of saving, investing, and achieving financial freedom apply to everyone. There are certain groups of people who may face unique challenges and opportunities (when it comes to managing their finances).
For students, for example, it may be difficult to balance the cost of tuition and living expenses with the need to save for the future. Tips for students could include strategies for managing student loan debt, building an emergency fund, and finding part-time work or internships to supplement income.
Young professionals, on the other hand, may be starting to build their careers and may be focused on saving for a down payment on a home or starting a family.
Tips for young professionals could include advice on investing in a 401(k) or in other retirement accounts, creating a budget, and setting financial goals.
For retirees, the focus may be on generating income from savings and investments while managing healthcare costs. Tips for retirees could include advice on creating a budget, managing debt, and maximizing social security benefits.
⑫ Understanding and improving your credit score
Having a good credit score is an important aspect of personal finance and achieving financial freedom. A good credit score can help you get approved for loans, credit cards, and mortgages, and can even help you get better terms and lower interest rates.
Understanding what is included in your credit score calculation is important to know. This can help you identify areas that need improvement.
Your credit score is usually based on five main factors:
- Payment history (35%)
- Credit utilization (30%)
- Length of credit history (15%)
- New credit (10%)
- And types of credit used (10%)
To improve your credit score, you should start by correcting errors in your credit report. The Fair Credit Reporting Act gives you the right to dispute any errors, you should review your credit report and correct any errors you find.
Once you’ve corrected any errors, you can start to focus on the other factors that affect your credit score.
❖ Pay your bills on time
To improve your payment history, you should make sure that all bills are paid on time. Late payments can have a significant impact on your credit score.
To improve your credit utilization ratio, you should aim to keep your balances low. The lower your balances are, the better your credit score will be.
❖ Keep your credit accounts open
To improve your length of credit history, you should try to keep your old credit accounts open. The longer your credit history, the better your credit score will be.
To improve your new credit score, you should avoid applying for new credit too often. Each time you apply for credit, it can have a negative impact on your credit score.
❖ Have a mix of credit accounts
To improve the types of credit used, you should try to have a mix of different types of credit accounts, such as a mortgage, a car loan, and a credit card. This shows that you can handle different types of credit responsibly.
Additionally, you can also consider getting a credit-builder loan or a secured credit card which are designed for people with little or no credit history. This will help you establish a credit history and improve your credit score.
⑬ How to enjoy the best of both worlds: 5 simple strategies
We all have desires for luxuries — whether it be a designer handbag, a fancy car, or a luxurious vacation. However, indulging in too many luxuries can put a dent in our savings. And make it harder to reach our financial goals.
❖ Set a budget
The key to enjoying luxuries without breaking the bank is to set a budget for luxuries. Decide how much you can afford to spend each month on luxuries and stick to it. This will help you to prioritize which luxuries are worth indulging in and which ones can wait.
❖ Find deals
Another strategy is to find deals and discounts. You can find great deals on luxury items during sales and clearance events. Also, you can try to buy preowned luxury items, which can be significantly cheaper than buying them new.
❖ Buy quality and keep it forever
When looking for luxuries, prioritize quality over quantity. Instead of buying multiple cheaper items, it may be more cost-effective to invest in one high-quality item that will last for years.
One great example is buying a designer handbag. Instead of buying multiple cheaper bags that fall apart quickly, it may be more cost-effective to invest in one high-quality designer bag that will last for years.
Another example is buying a car. Instead of buying a brand-new luxury car, it may be more cost-effective to buy a pre-owned luxury car that is still in good condition.
❖ Travel in the off-season
Luxurious vacations can also be enjoyed without breaking the bank. You can choose to stay in vacation rentals or budget-friendly hotels, instead of expensive resorts. You can also choose to travel during the off-peak season when prices are lower.
❖ Find balance
The point is to find a balance between enjoying them and reaching your financial goals. You can also invest in experiences, such as a cooking class, a wine tasting, or a concert. These experiences can be just as enjoyable and memorable, without the added financial burden.
Final thoughts
Of course, we can’t — and shouldn’t — stay away from treating ourselves (every once in a while). It’s key to keeping our sanity. And we aren’t robots. We are human beings with needs and wants. So the least we can do is be mindful.
However, it’s easy to get lured in. I found myself several times going from spending nothing on luxuries to going all out. Sometimes it’s more difficult to stick to one item so I prefer to cut them all out once I notice the feeling of overspending taking over.
I have sold most of my luxury items (including watches and sports cars) as I feel my priorities are different now. These are just things I simply don’t need right now. As simple as that.
Be mindful every time you want to derail from your savings goals. Be mindful when you want to buy something that isn’t really a need. Just by being mindful you can stay in control. Most of the time, this will do the trick.
Personally, what I like to do, is write down my wants as they come. But give them time before taking action. Some items will stay on the list (usually the most expensive ones) until the end of the year. Then I’ll check my savings goals.
If I have reached my goals, then I’d buy items from that list equal to 1-3% of that number (you can play and experiment with this number as you wish). This is also a good way to teach kids how to be patient. And only buy the things that they really want. And not every single thing that comes to mind.
And remember: price is what you pay, value is what you get.
