Financial Health
💰 Is It a Necessity or a Luxury? Your Spending Habits May Be Shaping Your Financial Health
I once asked my dad if he thought my orthodontist had a lot of money. He looked at me and said, “It all depends on the amount of money he spends.” 💭
That simple answer has stayed with me because it illustrates an important financial truth: income and wealth are not the same thing. Someone can earn a great deal of money and spend nearly all of it, while someone earning considerably less can live below their means, save consistently, and gradually build wealth. In other words, what comes into your wallet matters, but what stays there matters, too. 💵
🌎 We Don't All Start From the Same Place
We are all at different socioeconomic levels. Our wages, careers, degrees, certifications, investments, upbringing, neighborhoods, self-perceptions, perceptions of society, views of public assistance, inheritance, work ethic, entrepreneurial mindset, and spending habits can all influence how we view money and material possessions.
What one person considers a necessity, another person may consider a luxury. And there is plenty of territory between those two extremes. A morning coffee might be an unnecessary expense to one person, an affordable pleasure to another, and an important part of someone's daily social routine to someone else. ☕️
That's why this isn't intended to be a lecture about what you should or shouldn't buy. Instead, think of it as a financial self-reflection exercise. The Consumer Financial Protection Bureau (CFPB) emphasizes that distinguishing needs from wants can help us make spending decisions that better align with our goals.
🔥 Is Your Spending Fueling Your Financial Health?
Imagine your finances are a campfire. 🔥
Your income provides the fuel, while your spending determines how quickly that fuel is consumed. Some spending keeps the fire going—housing, food, transportation, healthcare and other necessities—while other spending acts as lighter fluid and can burn through your resources much faster than you realize.
The goal isn't to eliminate every enjoyable purchase. The goal is to know which purchases are feeding your financial fire and which ones may be burning through your resources.
Since we are all starting from different places, every purchase deserves a little self-reflection. Ask yourself:
Do I need this, or do I simply want it? 🤔
Can I afford it without increasing my debt?
Will I still value this purchase next month?
Does this purchase support my financial goals?
Could this money be doing something more valuable for my future?
The CFPB recommends tracking actual spending rather than relying on what we think we spend. Seeing where your money actually goes can reveal opportunities to adjust spending, save, or reduce debt. Try doing this for one to three months to see where your money is going.
🧭 Necessity, Somewhere In Between, or Luxury?
Let's start with some basic definitions.
Necessity: 💚
Something that is reasonably necessary to meet basic needs, maintain health and safety, fulfill important obligations, or participate in essential aspects of daily life.
Luxury: 💎
Something that goes beyond what is reasonably necessary and is primarily purchased for additional comfort, convenience, enjoyment, status, or personal preference.
And if you aren't comfortable making every purchase a simple “Yes” or “No,” let's add a third category:
Somewhere In Between ⚖️
This is where many real-life financial decisions belong. Something can be affordable and enjoyable without being essential.
The important question isn't necessarily, “Is this a luxury?” It is: “Can I comfortably afford this luxury while still taking care of tomorrow?”
🚗 Transportation
Transportation is a great example because the difference between a necessity and a luxury can be enormous.
Necessity: 🚌
Public transportation, walking, biking, carpooling, or an economical vehicle that reliably gets you where you need to go.
Somewhere In Between: 🚙
A vehicle whose total costs fit comfortably within your budget. A useful planning target might be keeping total transportation costs around 10% of gross monthly income, although this is a guideline—not a universal financial rule.
Remember that the cost of a car isn't just the monthly loan payment. Consider:
Car payment
Insurance
Gas or electricity
Maintenance
Repairs
Inspections, Registration and Taxes
Parking
Depreciation
Accidents
Tickets
Luxury: 🏎️
A vehicle that consumes a disproportionately large share of your income because of its purchase price, financing, insurance, maintenance, or other costs.
A shiny new vehicle can feel like a reward, but remember: a car is generally a depreciating asset. Money tied up in an expensive vehicle can't simultaneously be working toward your emergency fund, debt reduction, retirement, or investments. Investor.gov specifically warns that an expensive car payment can limit your ability to save, invest, pay down debt, or pursue other financial goals.
🍎 Food
Food is necessary. How we obtain it isn't always necessary. 🥕🍚
Necessity: 🫘
Homemade Mexican pinto beans and rice with peppers, onions, and tomatoes can provide a nutritious, satisfying meal at relatively low cost.
Somewhere In Between: 🌯
Occasionally picking up a Mexican burrito because you are busy, tired, or simply want the convenience.
Luxury: 🍽️
Frequently dining at a Mexican restaurant (or any restaurant for that matter)
There is nothing wrong with going to a restaurant. The question is whether restaurant meals are an occasional pleasure or a recurring expense that prevents you from reaching your financial goals.
📱 Connectivity
Internet and cellular service have become increasingly important parts of modern life. 💻📱
Necessity: 📚
Basic internet or cellular access, along with free resources such as public libraries, educational websites, and other no-cost services. Shop around for the lowest-cost option that meets your basic needs.
Somewhere In Between: 🎓
Paying for a subscription that you consistently use for education, professional development, or another meaningful purpose.
Luxury: 📺
Maintaining multiple paid subscriptions that you rarely use—or forgetting that you are paying for them at all.
One $10 subscription may seem insignificant. Ten forgotten $10 subscriptions are $100 a month, or $1,200 a year. That's money that could instead be building an emergency fund or investment account.
🏠 Housing
Housing is one of the biggest expenses most households face, so small differences can have enormous long-term consequences. 🏡
Necessity: 🏠
Choosing housing that meets your needs while keeping your personal housing burden manageable. For some people, that might mean sharing housing or having a roommate.
Somewhere In Between: 🏡
Housing costs that remain within a reasonable portion of household income.
The often-cited 30% housing-cost threshold is a useful benchmark, not a law of personal finance. Housing and Urban Development (HUD) uses 30% of income as a standard threshold for identifying housing cost burden, although actual affordability depends on income, location, household circumstances, debt, transportation costs, and other expenses.
Luxury: 🏰
Housing that consumes so much of your income that it prevents you from saving, investing, paying down debt, or maintaining an emergency reserve simply because you want a larger, newer, or more prestigious home.
And here's an important distinction: owning an expensive home doesn't automatically make someone wealthy.
If the home requires nearly every dollar of your income to maintain, the house may own you rather than the other way around.
❤️ Social Connections
Being financially responsible doesn't mean becoming a hermit. In fact, spending time with people you care about can be one of life's greatest sources of happiness. 👨👩👧👦❤️
Necessity: 🌳
Spend time with friends at home or at no-cost venues:
Public parks
Local beaches
Community hiking trails
Public libraries
Free museum days
A friend's backyard
DIY movie or game nights
Somewhere In Between: 🎟️
Occasionally paying for an activity that creates meaningful memories.
Luxury: 🎬
Regularly spending significant amounts on movies, concerts, dance halls, amusement parks, sporting events, and other entertainment simply because that's how your social life has evolved.
The goal isn't to make socializing cheap. It's to make sure money isn't the price of admission to every friendship.
💎 Other Purchases Worth Examining
Here are some additional expenses that might fall anywhere along the necessity-to-luxury spectrum depending on your circumstances:
🏋️ Gym memberships
🎨 Tattoos
🏃 Running clubs
☕ Fancy Coffee on the go
🥑 Gourmet ingredients
🚚 Grocery and convenience deliveries
🧴 High-end soaps, creams, shampoos, and cosmetics
💐 Fresh flowers
✈️ Travel
👔 Designer products
None of these things are automatically “bad.” A gym membership might improve your health, a running club might provide community, and travel can create memories that last a lifetime. Financial health isn't about eliminating everything enjoyable; it's about making sure your spending reflects your priorities.
🪞 The $25 Question
Here's a simple exercise you can try.
Look through your spending from the past month and identify one expense you could reduce or eliminate. Maybe it's a subscription, a restaurant meal, a repeated delivery charge, expensive cups of coffee, or an impulse purchase.
Now imagine that instead of spending that money, you automatically put $25 a month into savings or investments.
Twenty-five dollars doesn't sound like much. But small amounts can grow over time because of compounding. Investor.gov describes the basic principle simply: regular investing + time can build wealth.
The important part isn't whether you start with $25, $50, or $500. The important part is creating the habit of paying your future self.
🆘 Don't Forget the Emergency Fund
Before thinking only about investing, consider building a financial cushion for life's surprises. 🚗🔧🏥
A broken car, unexpected medical bill, home repair, or interruption in income can quickly turn an inconvenience into debt if you have no savings available.
The CFPB recommends establishing dedicated emergency savings and notes that even a small amount can provide financial security and help you recover from unexpected expenses.
Think of an emergency fund as the shock absorber of your financial life. It doesn't make unexpected expenses disappear, but it can keep one financial pothole from becoming a major accident.
🔄 The Most Important Step: Redirect, Don't Replace
Here's where the real financial magic happens.
Once you identify ways to save money, don't simply spend the savings somewhere else. Redirect that money toward an emergency fund, debt repayment, retirement account, or other investment.
If you save $25 by canceling a subscription and then spend $25 more at a restaurant, you haven't improved your financial health. You've simply moved the money from one leaky bucket to another. 🪣
But if that $25 automatically moves into savings or investments every month, you've created a new financial habit. And if $25 seems like too much, try $5 or even 50 cents. Little by little, the habit—and what you learn from the habit—can improve your financial health.
That is the difference between spending less and becoming financially healthier.
🌱 Your Money Can Work While You Sleep
There is another reason this matters.
When you spend every dollar you earn, your future depends almost entirely on your ability to continue working. But when you consistently save and invest, some of your money can begin working alongside you. 📈
Investor.gov explains that regular investing over time can help build wealth through compounding, although investments involve risk and can lose value.
Think of it like planting a tree.
🌱 Today: You plant the seed.
🌿 Tomorrow: You water it.
🌳 Years later: It may provide shade, fruit, and shelter.
Your investment account may not look impressive after the first few months. But consistent contributions and time can potentially transform small beginnings into something much larger. And if you have children, nieces, or nephews, you can start teaching the next generation how to take care of their financial health.
😊 Financial Health Is About More Than Money
Ultimately, financial health isn't about depriving yourself.
It's about having enough control over your money that you can spend on the things that genuinely matter to you without constantly worrying about how you'll pay for them.
It's about creating choices. It's about reducing financial stress while increasing your ability to handle life's surprises and pursue your goals.
So the next time you reach for your wallet, pause for a moment and ask:
“Is this purchase a necessity, somewhere in between, or a luxury—and is it worth what it costs me today and what it could cost my future?” 🤔💰
You don't have to say “no” to every luxury.
Sometimes the healthiest financial decision is to say “yes.”
Just make sure you're saying “yes” intentionally.
🌟 Final Thought
My dad's answer about my orthodontist wasn't really about his annual income.
It was about something much bigger: wealth isn't determined solely by how much money you make; it's also influenced by what you do with the money you have.
Once you identify ways to save money, look for ways to redirect that money toward building financial security and long-term wealth. Even $25 a month can become meaningful when it becomes a habit and has years to grow.
The real trick isn't simply to spend less.
It's to make sure the money you don't spend today isn't quietly spent on something else tomorrow. Put it to work for your future. 🌱💰