When finances are tight or the economy is down, people don’t necessarily stop spending on luxury. Instead, the luxury product gets smaller. This phenomenon was coined the “lipstick effect” by Leonard Lauder, the then-chairman of Estée Lauder, in 2008. By buying something small, like lipstick, from a name-brand company, consumers can get the feeling of luxury without the luxury price tag. Marketers call this the “small treat economy,” and it’s not just makeup anymore. People spend on gourmet food, curated stationery, designer accessories, and other small indulgences. When bigger purchases feel unattainable, people tend to shift toward smaller, repeatable luxuries that can still provide a similar emotional boost.
Many financial experts advise cutting out these small luxury purchases for the sake of financial health. But do these small indulgences really have that big of an impact?
Yes and no. Indulging in a designer lipstick or gourmet cheese occasionally is unlikely to endanger your financial health. However, problems can arise when this spending is poorly managed. When buying small luxuries becomes habitual, impulsive, or a primary form of stress relief, it can become a bigger financial problem. Small expenses that occur frequently can add up to rival or even exceed traditional monthly bills. Even households with high incomes can run into trouble if spending on small luxuries becomes impulsive and frequent.
Cutting down on small expenses should be approached with care. Cutting out too much, too quickly can make spending unpredictable because of the emotional and psychological impact of extreme restriction. Small luxuries don’t necessarily need to be eliminated completely—they need to be managed strategically and thoughtfully.
Having a sustainable plan for cutting down on small luxuries should be the goal. Cutting out this category completely can have the opposite effect. Going for an extended period without any small indulgences can lead to bigger spending sprees when stress levels rise. People can find themselves yo-yoing between spending nothing on luxuries and spending a lot in a short amount of time. This yo-yo effect can have a greater negative impact on finances than the spending habits that existed before implementing an extreme plan.
A strategy that focuses on emotional sustainability can be more effective financially in the long run than attempting to stick to an extremely restrictive plan. The goal is not perfection—it’s finding a spending approach that you can realistically maintain over time.
Many small expenses are made out of habit without reconsidering the value they provide. Take streaming platforms, for example. Many people subscribe to a specific platform because it makes sense in the moment. But circumstances can change over time. A platform that was watched frequently a year ago may no longer be used very often. However, people may continue paying for the subscription without reevaluating the value it brings to their household.
Reviewing current expenses and comparing their utility to the value they provide can help you cut down on unnecessary spending while still preserving the purchases and services that genuinely improve your quality of life.
It’s not about cutting out this category completely. It’s about adjusting your spending so that small luxuries don’t interfere with your financial goals or overall financial health.
Implementing certain rules around buying small luxuries can help control impulse purchases and naturally reduce spending. For instance, waiting a week or two before buying a new product or electronic gadget can help clarify whether the item is something you genuinely want or something you’ll quickly lose interest in.
You can also make smaller adjustments to existing habits. For example, instead of buying coffee before work five days a week, try cutting it down to three days a week. You still get to enjoy the purchase while reducing how much you spend over time. Again, the focus should be on adjusting spending to better match your lifestyle and financial goals—not eliminating every small indulgence.
Small luxuries aren’t necessarily a problem. In moderation, they can be an enjoyable part of everyday life. The key is making sure these purchases are intentional rather than habitual or impulsive. By reviewing expenses, identifying outdated spending habits, and creating sustainable rules around indulgences, you can make room for the things you enjoy without letting them derail your financial goals. Sometimes, financial health isn’t about giving up every little treat—it’s about learning which ones are worth keeping.
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