Here are a few day to day scenarios where I think it's more than okay to pick your little one up!
1️⃣ If you're somewhere new and/or overly stimulating and your dog is having a tough time adjusting. This can look different for each dog, but sometimes walking in another direction just won't do. In that case, a reliable option is to pick your dog up so that he/she can have a well deserved mental break in your arms.
2️⃣ If you're in a high traffic area and feel like it would be safer for your dog to be in your arms. I personally feel much more comfortable if I can hold a small dog in my arms when walking across a busy intersection. This can help make things a little less scary for him/her as a whole.
3️⃣ Especially if your dog is shy, if there are going to be other, bigger and/or more boisterous dogs around, it's a good idea to begin their interactions from a safe distance and just watching, from your arms, before meeting up close.
Trust your gut and intuition. I've yet to meet a small dog who had behavioural issue due to being picked up at the right time.