Saving for a non-necessity
Total income - mandatory spending (ie bills) = discretionary income.  Make a budget and calculate how much discretionary income you have each pay period. Save some fraction of your discretionary income towards this purchase. Pull the trigger when you have enough saved.  By thinking this way, you ensure that the PS is robbing from movies, dining out, booze, etc instead of taking from rent money or the electric bill. Do not use debt to make this purchase. It would be wise to put off this purchase until you have a solid emergency cash reserve that can sustain you if life throws you a curve ball. You should also make sure to eliminate any bad debt, like credit card debt, before splurging on a new gaming console. The same as you would save for anything else, buget and make sure your expenses are less than your income each week. Put away a little each week for the item you want to buy, and when you have saved up enough for the item you can buy it. In the mean time whilst you are saving for it, you can shop around to see where you can buy it at the lowest price. Your question is rather direct, but I think there is some underlying issues that are worth addressing.  One How to save and purchase ~$500 worth items This one is the easy one, since we confront it often enough.  Never, ever, ever buy anything on credit. The only exception might be your first house, but that's it. Simply redirect the money you would spend in non necessities ('Pleasure and entertainment') to your big purchase fund (the PS4, in this case). When you get the target amount, simply purchase it.  When you get your salary use it to pay for the monthly actual necessities (rent, groceries, etc) and go through the list. The money flow should be like this: Two How to evaluate if a purchase is appropriate It seems that you may be reluctant to spend a rather chunky amount of money on a single item. Let me try to assuage you. 'Expensive' is not defined by price alone, but by utility. To compare the price of items you should take into account their utility. Let's compare your prized PS4 to a soda can.  Is a soda can expensive? It quenches your thirst and fills you with sugar. Tap water will take your thirst away, without damaging your health, and for a fraction of the price. So, yes, soda is ridiculously expensive, whenever water is available. Is a game console expensive? Sure. But it all boils down to how much do you end up using it. If you are sure you will end up playing for years to come, then it's probably good value for your money.  An example of  wrongly spent money on entertainment: My friends and I went to the cinema to see a movie without checking the reviews beforehand.  It was so awful that it hurt, even with the discount price we got. Ultimately, we all ended up remembering that time and laughing about how wrong it went. So it was somehow, well spent, since I got a nice memory from that evening.  A purchase is appropriate if you get your money's worth of utility/pleasure. Three Console and computer gaming, and commendation of the latter There are few arguments for buying a console instead of upgrading your current computer (if needed) except for playing console exclusives. It seems unlikely that a handful of exclusive games can justify purchasing a non upgradeable platform unless you can actually get many hours from said games.  Previous arguments to prefer consoles instead of computers are that they work out of the box, capability to easily connect to the tv, controller support... have been superseded by now. Besides, pc games can usually be acquired for a lower price through frequent sales. More about personal finance and investment "In the course of one's spending, it's not tough to find things that are going to be that expensive.  A median income is in the $50K range in the US. The diamond folk advertise that one should spend 3 month's salary on an engagement ring. Even with a decent income, I spent zero. My wife was practical, not interested in jewelry, and wanted a big house. The money went to the downpayment. The house cost 2.5 years salary at that time.  A car, even used, will cost some month's salary.  If that $50K earner is saving, has an emergency account, and is on track with their financial long term goals, a week's pay can buy a nice sized TV.  A nice vacation can cost a week's pay to a month's pay.  Your question is great, although it shows a concern that's typical very early on in one's career. There are related question here about ""how can I spend more?"" They tend to come from someone living on a student budget that now has an adult's income from a desirable job. The answer is to sit down, list your monthly spending, properly budget a decent portion for savings, and see how much you have for frivolous spending. Keep in mind, it's easier to sock it away now. No house, no kids, etc. When we were first married, we lived on my wife's income (in effect) and socked mine away. The house tightened the budget, as did the kid.  In the end, the PS4 is less about the $400 than it is about the rest of your finances."
If I were in your shoes (I would be extremely happy), here's what I would do: Get on a detailed budget, if you aren't doing one already. (I read the comments and you seemed unsure about certain things.)  Once you know where your money is going, you can do a much better job of saving it. Retirement Savings: Contribute up to the employer match on the 401(k)s, if it's greater than the 5% you are already contributing. Open a Roth IRA account for each of you and make the max contribution (around $5k each).  I would also suggest finding a financial adviser (w/ the heart of a teacher) to recommend/direct your mutual fund investing in those Roth IRAs and in your regular mutual fund investments. Emergency Fund With the $85k savings, take it down to a six month emergency fund.  To calculate your emergency fund, look at what your necessary expenses are for a month, then multiply it by six.  You could place that six month emergency fund in ING Direct as littleadv suggested.  That's where we have our emergency funds and long term savings.  This is a bare-minimum type budget, and is based on something like losing your job - in which case, you don't need to go to starbucks 5 times a week (I don't know if you do or not, but that is an easy example for me to use).  You should have something left over, unless your basic expenses are above $7083/mo. Non-retirement Investing: Whatever is left over from the $85k, start investing with it. (I suggest you look into mutual funds) it.  Some may say buy stocks, but individual stocks are very risky and you could lose your shirt if you don't know what you're doing.  Mutual funds typically are comprised of many stocks, and you earn based on their collective performance. You have done very well, and I'm very excited for you. Child's College Savings: If you guys decide to expand your family with a child, you'll want to fund what's typically called a 529 plan to fund his or her college education.  The money grows tax free and is only taxed when used for non-education expenses.  You would fund this for the max contribution each year as well (currently $2k; but that could change depending on how the Bush Tax cuts are handled at the end of this year). Other resources to check out: The Total Money Makeover by Dave Ramsey and the Dave Ramsey Show podcast. "Others have already explained why lotteries have negative expected value, so in that sense it is never wise to buy a lottery ticket.  I will provide an alternative view, that it is not always unwise to buy a lottery ticket even though the expected value of the lottery ticket is lower than its cost (i.e. a loss). The question is what you mean with ""wise"" A (not completely unlikely) scenario is one where your life (financially) suck, and even if you saved the cost of the ticket (instead of buying it) your life would still suck. Even if you saved the cost for a ticket every week for 10 years, your live would not be essentially better. You could maybe afford a TV, or a new car in 40 years, but if you were to quantify the happiness of your life it would still be essentially crappy. But winning the lottery would significantly improve your life and make you happy. So in this scenario there are two choices, either save the money for 0% chance of a happy life, or spend it on a ticket for a (extremely) small chance of a good life. Yes, the expected value of saving the money is higher than when buying the ticket, but ""expected happiness"" is higher when buying the ticket (non-zero).  This is clearly an extreme example, but variants of this might apply (the essence is that your valuation of the money is non-linear, 1 million will make you more than 1000 times as happy as 1000.)" "Law is a mass of special cases, informed by but not driven by some general principles. Tax law likewise. Don't try to make it make sense; you will only confuse yourself.  Not all ""necessities"" are deductable, only those which someone has explicitly passed a law to make deductable." I would say 90% of my purchases are through Amazon prime these days.  May not be the same for everyone, but I also dont buy much in terms of retail items.  Food, drink, home necessities, yeah I still go to the store for. "If one takes a slightly more expansive view of the word ""saving"" to include most forms of durable asset accumulation, I think the reason some do and most don't is a matter of a few factors, I will include the three that seem obvious to me: Education Most schools in the US where I live do not offer personal finance courses, and even when they do, there is no opportunity for a student to practice good financial habits in that classroom setting. I think a simple assignment that required students to track every penny that they spend over the period of a few months would help them open their eyes to how much money is spent on trivial things that they don't need. Perhaps this would be more effective in a university setting where the students are usually away from home and therefore more responsible for the spending that occurs on their own behalf. Beyond simple education about personal finances, most people have no clue how the various financial markets work. If they understood, they would not allow inflation to eat away at their savings, but that's a separate topic from why people do not save. Culture Since much of the education above isn't happening, children get their primary financial education from their parents. This means that those who are wealthy teach their children how to be wealthy, and those who are poor pass on their habits to children who often also end up poor. Erroneous ideas about consumption vs. investment and its economic effects also causes some bad policy encouraging people to live beyond their means and use credit unwisely, but if you live in a country where the average person expects to eat out regularly and trade in their automobiles as soon as they experienced their highest rate of depreciation, it can be hard to recognize bad financial behavior for what it is. Collective savings rates reflect a lot of individuals who are emulating each other's bad behavior. Discipline Even when someone is educated about finances, they may not establish good habits of budgeting regularly, tracking spending, and setting financial goals. For me, it helps to be married to someone who has similar financial goals, because we budget monthly and any major purchases (over $100 or so) must be agreed upon at the beginning of the month (with obvious exceptions for emergencies). This eliminates any impulsive spending, which is probably 90% of the battle for me. Some people do not need to account to someone else in order to spend wisely, but everyone should find a system that works for them and helps them to maintain some financial discipline." I'm not a finance guy (at all), but I would think the saving habits developed over the past few years of down-turn would take awhile to break down again. Meaning people may be able to afford dinner out, but have gotten used to not spending the money on it. I would imagine many people's habits have changed. It's an issue of how much of a safety net you want, and part of that is going to be how much of a safety net you have in other areas. You should take into account what regular expenses you have, what emergency expenses you might have, what insurance policies you have, what deductibles those policies have, and what sources of money you have. As Alex B says, a HELOC isn't a guaranteed source of money, but it is one contingency. If you have a large amount of equity and your local real estate market is stable, your bank could cancel your HELOC, but they would have no financial incentive to do so. Other possible safety nets to consider would be friends and family, credit cards, and loans backed by retirement funds. Obviously you shouldn't rely on the last two for everyday expenses, but it's reasonable to consider them as contingencies in true emergencies.  Also, if you have a significant net worth, home equity and savings account should not be the only places you're storing your wealth. Look into stocks, bonds, and money market accounts. Your expected returns in the stock market should be higher than the interest you're paying on the HELOC. Stocks are more risky and obviously you shouldn't put all your savings there, but it is one more basket to put your eggs in, and unlike a savings account your money isn't just sitting there. Avoiding a cost (interest) isn't quite the same as income. There is no entry, nothing for you to consider for this avoided interest.  What you do have is an expense that's no longer there, and you can decide to use that money elsewhere each month.