I hope you're sitting down, because here's something you don't hear very often: I, Suze Orman, think it is okay to splurge. Once in a while. Under certain conditions. That's because giving yourself permission, and the budget, to enjoy life's little extras can be a major driver of financial success. Just like a weekly cheat day makes it easier to maintain a healthful diet, a treat here and there can help you stay committed to long-term financial goals—and, in the short term, deliver an extra shot of happiness. Here's how to splurge smart:

1. Make It Count
Roughly six in ten women report that they indulge in retail therapy. Too often, that's just pointless spending. To prove it, I hereby challenge you to go through your closets, drawers, and storage spaces and pull out everything you haven't used for at least one year that does not have significant sentimental value. (Bonus: Do the same with your kids' stuff—what you splurge on for them can be mind-boggling.)

Most of those unused and untouched purchases will likely fall into one of two categories: God, I was having a bad day or Hey, I was on vacation! All of them should be a reminder of how fleeting the spending high can be.

2. Make It Special
If the purpose of splurging is to feel happier, plan to:

Spend on experiences rather than things.
Research has shown that we get more kick from what we do than from what we buy. Meeting a friend for a movie or a mojito (or both!) is going to give you more lasting pleasure than just another sweater.

Do something different.
In Happy Money: The Science of Happier Spending, Elizabeth Dunn and Michael Norton contend that in general we value infrequent treats more than everyday experiences. So stick with a regular cup of joe, and save your latte/frappé concoction for just once or twice a week. Something you do daily is not a treat; it's just part of your routine.

Splurge on time creators.
If paying the teen next door to rake leaves or shovel snow frees up a weekend afternoon for you to do something you enjoy, that's a savvy splurge.

3. Make Sure There's a Payoff
Before you shell out a penny, I want you to have this internal conversation: On a scale of 1 to 10, with 10 being fabulous, how am I likely to feel one hour and one day after this purchase? If you aren't at 9 or 10, come up with a better treat.

4. Make a Budget
Okay, time for the money talk. (You knew it was coming!)

Splurges must be paid for in cash. And in order to splurge, you must be on track with your finances. That means you have no credit card debt, and you're making automatic contributions to your retirement and emergency funds. After paying your bills and setting aside a respectable amount for your long-term savings, here's the formula:

$ left over each month x 0.2 = Your Splurge Budget

If you have $500 left over, you can splurge up to $100 per month; if you have $50, you get $10. If that isn't enough to finance the treat you want, save up. The important thing: As long as there are financial goals you still haven't met, I don't want you spending more than 20 percent of your free cash flow on indulgences. The other 80 percent should be devoted to those goals.

I'll never stop saying that the ultimate indulgence is building a financially secure life. But if you can be mindful, sensible, and smart about it, you have my blessing to treat yourself.


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