Splash out or save: finding the right balance

Thinking about making a significant purchase? One of the biggest decisions you’ll need to make is whether you want to splash out now or save up for a little while.

Here are our top tips to help you understand how to spend without creating financial stress.

Understanding the 50/30/20 budget rule

Experts suggest that one of the best ways to manage your finances is to follow the 50/30/20 rule:

  • 50% of your income should be spent on financial obligations and essentials (such as your mortgage, insurance, utilities and groceries)
  • 30% of your income should be used to buy non-essential things (this can be anything from new clothes to technology)
  • 20% of your income should be either put away in savings or spent on making debt repayments

Following this rule can help you to set – and stick to – a budget. However, there may well be bigger purchases on the horizon that will cost more than 30% of your after-tax income. It’s then up to you to decide whether to spend, wait to save up or take out a loan or other form of lending to pay for the product or service.

When to spend

1. Your essentials are covered

You should always make sure that you can afford your usual expenses such as regular bills or debts before diving in and spending on any non-essentials. This will help to ensure that your additional spending doesn’t put strain on your finances – both in the short and long term.

It can be a good idea to work out your budget before committing to a big purchase. Look at how much you usually spend and how much you can realistically afford to spend at the end of the month. If you’re not sure you have quite enough to comfortably hit the checkout button, try to cut down on your non-essential spending or give one of our money-saving challenges a go to build up your savings pot.

2. Buying cheap means buying twice

When describing making an expensive purchase, we often use words or phrases like ‘splurge’ and ‘splashing out’. However, if you’re choosing to spend a little more on a quality product that will last – you’re actually investing your money as opposed to wasting it.

If you’re torn between buying an expensive item that will last you for years to come, or the cheaper option that will likely need to be replaced sooner rather than later, it might be a better idea to choose the pricier version (providing it still fits your budget, of course).

For example, when it comes to things like kitchen appliances or technology, a quality (and more expensive) model will likely last for much longer. Always look out for warranties on your purchases, too, as they’ll give you peace of mind that you’re covered for years to come should something go unexpectedly wrong with your purchase.

3. You’re investing in yourself

You may be hesitant to part with a large sum of cash, but items that boost your quality of life or improve your mental and physical health can often be considered a worthwhile endeavour.

For example, you might want to enrol in a night class or learn to drive. Or perhaps you’re taking on a home improvement project with the aim to boost the value of your property. If you have the money ready to go, it can be beneficial to spend it on things that enhance your life and your future, or that may provide a return on investment.

4. The item or service is something you’ve been saving for

We save up for a reason – often to buy big-ticket items or to realise a major life goal. Yet many of us can be hesitant to spend what we’ve worked so hard to save up for.

If you’ve been squirrelling away a chunk of money each month for a family holiday and you’ve finally hit your goal – now’s the time to actually spend the money you’ve saved. Enjoy booking your dream getaway!

5. You want to treat yourself

Don’t feel guilty for enjoying your spare money – that’s what it’s there for, after all. Just make sure you’re treating yourself after you’ve looked after all the essentials.

Keep an eye on your budget each month, too, so you can quickly identify any iffy spending habits. That one cup of coffee each day, regular spa day or shopping spree might actually be impacting how much you can save and ultimately spend on more important purchases.

When to save

1. You need to top up your emergency funds

Experts recommend it’s a good idea to have enough saved up to cover at least three months’ worth of essential expenses. So, if you still need to build up your savings pot, you may wish to prioritise saving up rather than splashing out on a pricey item.

2. It’s not a necessary purchase

Are you spending for spending’s sake? If so, take five and ask yourself if the product you’re buying is really worth the money.

If you’re still on the fence, wait 24 hours before diving in and making a purchase. You’d be surprised how often people change their minds when they’re not impulse buying.

3. You can wait

If you’re not in desperate need of the product or service you have your eye on, you may wish to wait and save up instead. This not only gives you time to really think about whether the purchase is necessary – thus curbing any impulse buys – but it can also allow you to save up for the things you need.

Of course, some things just can’t wait and that’s completely understandable. But dividing major purchases into short-term and long-term aspirations can give you financial goals to work towards.

4. You want to save on interest charges

Spending money you have already saved up is usually cheaper than borrowing money at a fixed rate of interest.  So, if you’re concerned about overall costs, saving up for the things you want or need could work out cheaper.

If you’re keen to keep your costs as low as possible, there are lots of ways you can stick to a small budget. For example, those renovating their homes could make some serious savings by bolstering their DIY skills or people looking for great things to do for less could try our range of low-budget activity ideas.

5. You’re in debt

It could be worthwhile prioritising paying off high-interest debts before ploughing too much money into your savings pot. That’s because, ultimately, debt can be expensive. A high-interest credit card or even a low-rate personal loan will cost you money in interest over time. Pay off your debt sooner and you could end up paying less interest in total. For example, here at Novuna, you can make additional payments throughout your agreement totally free of charge.

That’s why the 50/30/20 rule views saving and repaying debt as similar spending types, as ultimately you’re investing into your long-term financial goals.

When to borrow

1. You can comfortably afford the monthly repayments

Is a big purchase on the horizon but you can’t quite afford to pay for it all upfront? By borrowing the money, you could get the full amount upfront and repay it over a series of fixed rate instalments.

This can work well if the repayment fits comfortably into your monthly budget once all essential expenditures have been taken care of. However, if you don’t think you can realistically afford the monthly repayment, you may wish to save up for the things you need instead.

2. You are confident managing debt

There are lots of different payment options out there, and it’s important to understand what the costs and terms are before diving in.

For example, there are significant differences between a personal loan and a credit card, and understanding the pros and cons of both can help you to make an informed decision about your finances.

3. You have a good credit history

Borrowing money can be much more expensive, and harder to borrow in the first place, if you have a bad credit history. However, if you have a good credit history and can demonstrate you’ve responsibly managed debt in the past, it’s likely lenders will look at your application more favourably. This could secure you some of the best rates, which would make it cheaper to borrow the money you need.

It’s also worth mentioning that it’s very important to keep up with any new repayments, as missing or making a late payment could impact your credit file and affect your ability to borrow in the future. So, before clicking the ‘apply now’ button on that credit card or loan, make sure you check your credit report and work to improve your credit score if it’s not quite where you’d like it to be.

4. You don’t want to wait to save up

If you want an item or service sooner, borrowing money could help you to access the things you need. You might have your eye on a new car or be ready to furnish your newly-transformed living room, for example.

As long as you can comfortably afford to repay your debt, you may simply find it more convenient to spread the cost of a purchase as opposed to waiting to save up. Some may view it as ‘saving in reverse’ and you’ll be paying back what you would have paid into savings anyway – only you’ll have the things you want sooner.

5. An unexpected bill or expense has come up

Sometimes it’s just not possible to wait to save up. Maybe your fridge has packed up or you’ve been hit by an unexpected car repair bill. A loan could help you to borrow the money you need to fix the problem straightaway, where waiting for your savings to build could have a negative impact on your lifestyle.

Ready to make the important things happen sooner?

Read our ultimate personal loans guide for more information about borrowing money from us. We offer low-rate loans from 7.4% APR Representative (£7,500-£25,000) so you could get your hands on the money you need to reach your goals.


Written by

Sophie Venner

Sophie Venner is a Yorkshire-based content writer specialising in crafting content for the financial services industry. She’s written over 300 articles on finance, but she’s covered everything from insurance to digital marketing trends. Her content has been featured in the likes of Semrush, Digital Marketing Magazine and Insurance Business. In her spare time, you won’t find Sophie far from a notepad and pen as she squirrels away trying to write a novel.

Thursday 2nd May 2024