Is It Ever OK to Spend Money You Don't Have?

These tips help you determine if going into debt is a conscious investment that's worth it—or an unnecessary splurge or sign of lifestyle creep.

For me, the phrase "living beyond your means" conjures up the image of a motherly figure shaking her finger at me as I pull out my card to buy something I don't have money to pay for. But are there instances when spending money you don't have is OK?

You know you should keep a budget, track your spending, and only splurge on that vacation or night out after you've saved enough to pay for it. But in reality, most of us stick that purchase on a credit card and worry about paying for it later. According to a 2019 survey by GoBankingRates, more than two-thirds of Americans have less than $1000 in savings, and yet plenty of them are still splurging on fashion, vacations, and what have you.

The key is to determine whether a splurge is a conscious decision that's worth it in the long run or is simply a sign of lifestyle creep—slow, damaging, long-term living beyond your means.

Establish your baseline.

When considering a purchase not covered by funds in your checking account (or cash in hand, literally), the first step is to acknowledge that is what you're doing. In other words, create a controlled environment where you're conscious of your spending decisions. Once you're aware a purchase exceeds your assets, you can make a more rational decision.

Creating and contributing to an emergency fund helps you stay on top of what you're spending and better determine if you're living beyond your means. With a good sense of what flows in and out each month, you can decide what purchases to make, if any, that might stretch your resources.

Do a reality check.

Of course, there are times when you don't have a choice but to spend beyond your means: plumbing disasters, unforeseen medical expenses, emergency travel, or a higher-than-expected utility bill. We can't anticipate every expense that might bust our budget, which is why it's so important to have—and maintain—that emergency fund for unplanned, unavoidable expenses.

"When people think of 'spending beyond your means,' they usually think luxury purchases such as a vacation, fancy car, and expensive clothing," says wealth advisor Leona Edwards, CFP. "Most people would agree spending beyond your means for these items is inadvisable... [but] there are some instances where it might make sense to spend money you don't have."

Investments in yourself and your future—education, job training, or spending toward a small business venture that may pay off down the line—are a few examples of good debt. According to Edwards, it's fair game to consider good debt when your wallet is overextended, but only temporarily. She says it's also OK to consider spending beyond your means if you're facing an expense that may grow worse if you don't pay—such as ongoing health, home, or auto issues.

Decide whether to spend.

Once you've established a realistic financial landscape and prioritized potential wallet-busting transactions, Edwards offers these additional considerations when deciding on a purchase.

Consider how you'd benefit from the purchase.

Ask yourself, "Will this purchase potentially lead to a more lucrative outcome or just put me into greater debt with yet another [fill in the blank] that I don't really need?"

Identify how you plan to pay.

Determining whether to use a credit card, take out a loan, or pay through some other method is an important factor that may impact your decision to move forward with the purchase.

Plan your timetable for paying the money back.

"If it's just a few weeks and you have the available credit on your card, it would probably be OK to use it and just pay it off the next time your bill is due," Edwards says. "If it's going to be a longer-term debt, a student loan or getting a zero percent interest credit card—if you qualify for one—could be your best option."

Speak with a financial advisor.

Even if you're not planning a purchase you can't immediately afford, enlisting the help of a financial advisor is never a bad idea, as they can help you weigh all your options from an informed place.

Ask yourself, "Is this something I really need to do?"

If the answer is "yes," ask yourself, "Do I need to do it now or can I do some planning instead?" Edwards suggests if that vacation is calling you, rather than book it now on the credit card, you could save a little each month and book it a few months later.

"A repair or a health event probably needs to be addressed ASAP," she says, "but you might be able to wait a little longer on making a purchase for your business or going back to school while you save up or explore additional resources."

Ultimately, you are the arbiter of your finances and are capable of making decisions about when, or if, to spend your money—including money you don't have right now.

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