Amanda wrote with a question this week that I think many GRS readers can relate to: When is it okay to spend your savings?

My husband is currently unemployed so we’re just living on my salary, but at least we don’t have to pay for child care.  However, we are spending more than we make.  We had a fair amount stashed away from savings and some inheritance, and we’ve been dipping into this to help pay for things like:

  • Remodeling the house (my husband is doing all the work)
  • Health care
  • Sometimes even basic expenses

We haven’t been extravagant, and we have cut back on costs, but I wonder if we’re doing the right thing. If we didn’t have savings, the answer would be simple: don’t spend more than we make.  But since we do have savings…I’m left with a lot of question marks. 

When do we decide that even important expenditures are just too much and not worth spending our savings on? I’m thinking of things like health care, dental work, eating organic, cell phones.  I would very much appreciate advice!

This question gets to the heart of many personal finance decisions. Ultimately, money is a tool. It’s used to buy safety and happiness. The challenge is knowing when to use it — and when to keep it. Here are a couple of questions I would ask myself if I were in Amanda’s shoes:

  1. What are the savings for? That is, when that money was set aside, what was its intended purpose? If it was meant as a protective buffer, as an emergency savings account, then it could be a mistake to spend it on non-essentials.
  2. How long is her husband expected to be unemployed? How easy will it be for him to find work? Is he actively pursuing a new job? An economy like this — with growing unemployment — would make me nervous. But if he believes he can find work again, it probably doesn’t hurt to spend a bit of savings.

You cannot spend more than you earn forever. If you do, you end up like I did — deep in debt. Without some plan or a set of goals, it’s easy to just keep spending.

I believe strongly that the road to wealth is paved with goals. Spending without purpose is what led me into debt. But now that my spending is aligned with my vision for the future, I’m able to save and to use the money to achieve my objectives.

Because of this, I think that Amanda and her husband should establish some clear goals. It’s not necessarily wrong to use savings to remodel the house or to eat organic — if these actions are helping them pursue their dreams, and they can afford to do it. But if by spending their savings they find themselves moving away from their objectives, it’s time to re-evaluate the spending.

What advice can you offer Amanda? What would you do in her position, where you had savings, but were dipping into them temporarily to fund your lifestyle? Would you be worried? Why or why not? If you have savings, is it okay to spend more than you make? For how long?