Financial planners tend to have firm ideas about the most important goals: You should save for retirement, pay off debt and build an emergency fund. Buying a pair of $200 sneakers or an ultra-high definition TV is probably not on that list.
But maybe saving for something you really, really want isn't frivolous. It may be exactly what you need to get your financial life on track.
Researchers who have studied the role of savings in financial health say what's important is the habit of putting aside money and having a plan for that cash. People who have a planned savings habit are four times more likely to be financially healthy than those who don't, according to a report by the nonprofit Center for Financial Services Innovation. That habit is more important than income, age or other demographic characteristics, the report found.
Saving even small amounts can help people avoid the high cost of being broke. A few hundred bucks saved may help bypass credit card debt, payday lenders, rent-to-own stores and bank overdraft fees. It can help avoid eviction, or losing a job because the car broke down. Even a thin financial cushion can help people become more financially stable.
"That ability to be resilient in the face of ups and downs is a very important component of financial health," says John Thompson, senior vice president and head of research consulting at the Center for Financial Services Innovation. "It also helps people avoid high-cost financial services when they face a short-term challenge."
But saving a small amount, only to see it wiped out by an unexpected expense, isn't satisfying. Saving up to buy something we want, on the other hand, can feel like a real win — and it's the winning that matters to our brains. Each time we anticipate getting a reward, our brains are treated to a shot of dopamine, the chemical that makes us want to repeat a pleasurable experience.
Recalling our small wins also can help us learn to persist when difficulties arise, rather than just giving up, says Michael Thomas Jr., an accredited financial counselor who advises clients at the University of Georgia's free Aspire Clinic.
Remembering the times we've achieved a money-focused goal helps counteract the "negative automatic thoughts and catastrophic thinking" that keeps people from seeing progress, says Thomas.