It’s a new year and we all want a fresh start. Most of us will make resolutions. In fact, nearly 9 percent of the population made resolutions around making better financial decisions.

With that comes better spending habits. Unfortunately, some of us can take it to the extreme and force ourselves not to buy anything, only to binge-shop later in the year.

So instead of putting yourself through madness, I’ve come up with five easy questions for you to explore each time you want to make a major purchase. This will help you decide not only if it’s an investment or an indulgence, but also whether it’s worth your time and money.

This might be a tough pill to swallow, but unless you expect the product or service you’re purchasing to increase in value, you should consider it an indulgence. The word “investment” should be used carefully here, because we throw it around too easily.

For example, phrases like “This new car was beyond my budget, but I consider it an investment in my new career—I have to look the part!” or “This TV was an investment in my new home to make the decor really come together” are not investments, they’re just justifications for spending on an indulgence.

If it’s an investment, consider what your time horizon is for getting the return on your investment, and if it makes sense. For instance, if you’re buying your first home, you’re probably not planning to flip it within the first year. It’s a long-term investment, so it’s okay to have a longer horizon to get your return.

On the other hand, if you were buying your first home simply to make a profit within the first year, it may not be the smartest investment.

Finally, decide whether or not the investment or indulgence makes sense for you. If you know nothing about owning a restaurant, you probably shouldn’t go out and buy part ownership in a restaurant start-up. On the indulgence side, even if you have the money to buy a new BMW, it doesn’t mean you should—especially if you’re someone who lives below your means and it doesn’t fit your lifestyle.

So the first takeaway is to separate the two (and be okay with it). It’s not necessarily bad to spend money on an indulgence but, as you’ll see below, you just have to be smart about it.

2. Is it a need or a want?

Now is the time to do a little soul-searching and emotion-checking. If it’s something you want, don’t worry—it doesn’t mean it’s a bad or silly purchase, it just changes the way you need to think about things.

First, think about why you want the product or service. Take some time to think about this because your initial response might be different than the real answer if you weigh all the pros and cons, for instance.

Do you want it just because it’s on sale? Do you want it because it’s newer than what you already have?

Next, think about how long you’ll use the item, both annually and overall. Here’s what I mean—say you’re “investing” $2,000 in a state of the art, outdoor grill but you live in Connecticut, where you can only really grill out for maybe six months out of the year. Is it worth the cost for something that you can’t use all the time?

Maybe, but that’s what you have to decide. Also think about the total life of the item. Is it something that will last you ten months or ten years?

Finally, and most importantly, figure out if the purchase will add to your overall quality of life. This is something that my wife and I ask ourselves whenever we make a major purchase.

The benefit is that it helps justify things that are wants. Sometimes it’s easy to get so obsessed with only buying things you need and forget that it’s okay to indulge every once in awhile (responsibly of course).

If spending the money on this product or service will, in your opinion, add to your quality of life and make you happier in the long-run, then that’s important to know.

3. Did you plan for it?

The next important question to ask is whether you planned to make this purchase or not. I have to say I’ve never been a huge fan of budgeting until I tried You Need A Budget.

Now we’re able to plan ahead for major expenses and it doesn’t feel as shocking when we have to buy it, because we’ve already allocated funds for it. Doing some form of budgeting is important, otherwise you won’t know what you can and can’t really afford.

This leads to the next point: Can you afford the purchase without going into debt? Now it’s easy for me to sit here and say you should never take on debt to make a purchase, but honestly it’s not always realistic.

A perfect example of this is a car. If you have literally no other means of transportation (bus, bike, carpool, etc.) and you must have a car to get to work, then it might be time to look at a low-cost loan.

Please don’t get the wrong idea here, though. In no way am I encouraging you to take on debt to afford your purchases, but this is a crucial point where you have to decide for yourself how much you really need this item.

The final part of the planning phase is understanding whether or not you have room for the item. I say this thinking about both physical and mental space.

Yes, it’s important to know if you can fit the item in your home without causing clutter, but clutter can also cost you time, money, and stress. Think about if the physical or mental “space” this item takes up is worth it to you or not.

4. Can you find it cheaper (or free)?

If you’ve made it this far, you’ve probably decided you’re going to make the purchase. Now it’s time to get frugal.

Right out of the gates, you need to determine if the item definitely has to be new (e.g. a loofah for your shower) or if you can be equally as happy with the item being used (e.g. a bike). In most cases I would suggest trying to buy used first. You’ll save money and feel less guilty.

Next, you’ll want to make sure you’ve checked every place you can (within reason) for the lowest possible price. My suggestion is to not get extreme here—you don’t need to drive 100 miles to save $5, but it might be worth your while to do some online analysis. Use a site like PriceJump or PriceGrabber to get an initial look at who has the lowest price online.

The final thing is to focus on value instead of just going for the cheapest possible option.

Last year I heard an ad on the radio for a premium mattress. The person said they “can’t afford to be cheap.” At first I didn’t agree with that, but the more I thought about it, the more I understood.

How often do you buy stuff that breaks, needs to be thrown out, or is just no longer usable? If you focus only on the lowest price, you might be forgetting the key element—value.

Think about how you can get the best product, or the best version of the product, for the lowest price. Find your balance point of how much you’re willing to spend to get a quality product.

Yes, you may spend a little more, but in the long-run you may not have to replace it like you would a cheap product.

5. Can it wait?

Last but not least, determine if making the purchase can wait. One trick I’ve always used is to walk away.

If you’re at the store and you see something you want, go through these questions to determine if you really want it, but then walk out of the store and sleep on it. If you wake up the next day and still want the item, you can feel better about making the purchase.

If you’re shopping online, shut the laptop down, and go back to the site the next day if you still want the item. The point is to give yourself time to shake off the emotions of making the purchase. Buying something is a very emotional experience.


Spending money can be tough, especially if you’re someone who’s incredibly frugal. I like to think of this like dieting, though. When you’re on a diet, if you cut out all indulgences you’re more likely to quit the diet and binge-eat because you’ve deprived yourself too extremely.

Instead, indulge responsibly and in moderation and you can still have the things you want, but you’re more prescriptive about how and when you have them.

Read more:

  • 6 Ways To Trick Yourself Into Saving More And Spending Less
  • How To Save Your First $500