Should we save to splurge, or splurge to save? Luxury travel or budget travel? Or Both?
Both
Each trip we take tends to be different; each has a varied trip style. Saving to splurge or splurging to save are both good strategies---assuming you're not overextending yourself financially to do so. One strategy propels the other. Saving isn't that much of a sacrifice either, it still means you can travel by doing things like camp, stay overnight in a close-to-home destination or day trip. Then you've saved, enjoyed yourself in the process and get to splurge.
Splurge to Save Let's say you save for a year to go to the Maldives. Because you're a savvy traveler you book your entire trip with your travel rewards credit card, stay at a hotel in your destination whose loyalty program you belong to, and fly there with your preferred airline alliance. The result? Your next trip is partially paid for. This 'bonus' allows you to indulge in another, perhaps simpler, trip style sooner than later because of all the points accumulated in the Maldives adventure.
How
Travel credit card: you book the entire Maldives trip on your travel credit card, which gives you enough points/dollars to pay for a night or two at a hotel on a weekend getaway.
Airline alliance: you book all your flights to and from the Maldives with your preferred airline alliance, gaining enough miles to put toward a future trip. Let's say you left from Vancouver, Canada (YVR) and flew to Male, Maldives (MLE): your approximate return mileage would be 17,000 miles, which is 8000 miles short of a 'free trip' (depending on the airline rewards chart) in the continental US or Canada.
Hotel loyalty program: you choose a hotel in the Maldives that's part of your preferred hotel group, allowing you to accumulate rewards towards food and beverage certificates, third night free, room upgrades, etc...