Money

Financial planner: Feel free to splurge—just not this way

A woman carries shopping bags as she walks at the Pitt Street Mall in Sydney, Australia, on Thursday, April 13, 2017.
Brendon Thorne | Bloomberg | Getty Images
A woman carries shopping bags as she walks at the Pitt Street Mall in Sydney, Australia, on Thursday, April 13, 2017.

Some days call for treating yourself, whether it's going out for a nice dinner or springing for a new watch.

And as long as you're not sacrificing other financial goals, such as building an emergency fund or saving for retirement, and you keep the purchase price under 5 percent of your overall net worth, the occasional splurge is deserved, Garrett Oakley, certified financial planner at Betterment, tells CNBC Make It.

But what you choose to spend money on isn't always worth it.

If you're contemplating investing in a luxury item such as a classic car or brand-name handbag, don't do it for the appreciation value, says Oakley. You should make big purchases because they make you happy, not because you think they'll make you rich.

"You have to break down a splurge," Oakley says. "If you're going to buy something and expect that it's going to appreciate in value, I think that's a downfall."

To decide if a treat is worth it, Oakley suggests asking yourself three questions:

  • Am I going to get joy out of this?
  • What is the joy I'm going to get?
  • Is that worth the sacrifice I'm going to have to make somewhere else?

"You have to look at it from the mindset of, 'What would happen if no one ever wanted this again?'" he says.

If you're tempted to buy an item because it might be worth something in the future, try visualizing what you'd have to give up for it. Are you okay with not going on vacation this year so you can afford to buy this bike?

Whether it's a $1,000 smartphone or a $1 candy bar, the choice comes down to the non-monetary value the item adds to your life. If that thing was worth nothing tomorrow, would you still want it?

"It's always looking at any luxury purchase as, 'I'm purchasing this because I like it and even if it's worth $0, I will still enjoy it,'" Oakley says.

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