I think that we should allocate our money into 5 categories.
1. Necessary expenses.
2. Emergency fund.
3. Savings.
4. Investment.
5. Luxury. When I mean luxury, I do not actually mean it has to be expensive. But I say luxury because there are things that we do not need but still want to have or experience like traveling or eating at a good restaurant. I believe that even though we should be smart in finances this does not mean we have to completely deprive ourselves of enjoyment.
Points 1 through 4 are general points that must be applied in our lives to achieve a better future, both for ourselves and for our families, especially children. As they grow older, the costs of education and graduation will increase.
So, after we've created a budget for living expenses, we should set aside money for an emergency fund, savings, and investments. As for point 5, I consider it an additional point that we might not necessarily have every month. However, if it's something as simple as buying a delicious meal at the beginning of payday and sharing it with the family, it will indeed be a luxurious moment that will become a habit that the family looks forward to every payday. This is provided that we have already fulfilled the previous four points.
And luxury is different for everyone. But I prefer to call it pleasure, entertainment, or relaxation. Because as humans, we always need it to keep our moods from getting worse and to keep our minds free from stress. This aspect may seem unimportant, but it's actually quite crucial for mental health, which sometimes requires pleasure.
Necessary expenses are a must. The by that I don't not mean buying three $1000 suits or the latest model of ‘some product’ that looks really shiny. By necessary expenses I mean food and clothes, and medicine. Yes, the PS5 can wait. Savings and an emergency fund are totally different. Saving is something that you do every week or probably every month. Emergency fund is something that you put away and don't touch unless it's really an emergency. Saving would one day let you buy a house or a car and the emergency fund is going to make sure that you don't have to wait for someone else's help to stay alive or pay for your medication at the hospital when something terrible happens. Investment is and should be a very big and important part of someone's life because that's how you keep your money rolling and growing. But of course, it will have to invest wisely. I advocate something like the 50/30/20 system, 50% needs (your points 1-2), 20% savings/investments (points 3-4), and 30% wants (point 5).