How do you decide between using local state, context, state management libraries, or server state in a frontend application?

A child's personal toys are kept in their room (local state). Toys that the whole family uses are stored in the living room (context). A large inventory that needs careful management requires hiring a warehouse manager (Redux/Zustand). Borrowed items from an external library (API data) need a tracking system for return dates and renewals — that is server state, and it should not be mixed with household items.