When you go to make a purchase, how often do you ask yourself whether you can afford it? Now, I don’t mean whether you actually physically have a method of paying for it such as cash or a credit card, because being able to truly afford something goes beyond the simple question of whether there is enough money in your wallet, checking account, or available credit limit to make the purchase today. Believe it or not, even for small purchases this is a very important question – one that I wish I had asked myself a lot more often in years past.
The method of payment that you would use to pay for the item does figure in to whether or not you can afford it. If you will be using cash, check, or your debit card, think about how the purchase will affect the amount of money that you have available to pay your bills and meet the other needs in your budget this month. If you will use a credit card, think about how long it would take you to pay off the item, how much interest you will pay, and how this all fits into your monthly budget. If you can fit it into this seemingly harsh yet totally realistic formula, you may be able to afford it. The reason that I say “seemingly harsh” is that if someone were to have told me to do that about ten years ago, I would have stomped my feet and threw a princess fit because I wanted what I wanted when I wanted it. Of course, at the time I had no regard for consequences and thought that budgets were for the birds, so I have learned the hard way about what it really means to be able to afford things.
Another thing to consider is whether purchasing that item today will mean that you must forego other purchases in the future due to a shortage of discretionary income. If the tradeoffs that you would have to make seem okay in light of what you will gain by purchasing it, then it may be worth it. If you are thinking of dipping into one of your savings accounts to purchase the item, think again. Your emergency fund is there for serious emergencies like when the hot water heater or your car breaks, and if you have been saving up to buy a home, pay for college, or pay for retirement, it is not worth it to sacrifice those big goals for a new car, television, or whatever you are thinking of buying.
One last thing to remember is that while you are pondering whether you can afford something, if it seems like everyone else has one and somehow they can afford it, that is not a reason that makes it okay for you to get it. Many people buy things without regard to whether they can afford them. Some people can truly afford them and have gone through the thought process before buying them. Everyone’s financial situation is different, and your answer to the question of whether you can afford the item that you want applies to you alone.
Photo by mconnors on morguefile.com.