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In one of our dreaming moments during the weekend, Emma and I jokingly spoke about joining a private golf country club. It was brand new, relatively close from where we live and also extremely nice.
The financial commitment to enroll were:
- $30,000 to join (although that can be negotiated down to possibly $20,000 we heard) and 90% of the current initiation fee can be refunded when we decide to leave the club so we can theoretically even make money on this
- $475 monthly dues
So when we talked about whether we could afford it or not, the first reaction from the two of us were YES! Maybe its not so much of a dream anymore because:
- We can get our initiation fee back
- $475 a month is something we could come up with
Think Harder to Stop Wasting Money
Although we could come up with the monthly payment and hence we could “afford” joining, it obviously wasn’t a very sound financial decision for us. Here are a few reasons why:
- We Still Need to Buy a House - We already have a sizable down payment for our house, but we should make sure we borrow as little as possible when we actually make that purchase. It would be unwise for us to spend excessively right now and then take a larger mortgage payment.
- Our Life is Still Ahead of Us - Not only do we have plans to get a house, there will be additional expenses in our lives once we raise children and grow our family!
- Expect the Unexpected - 2 months ago, no one could imagine the Dow Jones Industrial Average losing 30% in a short few weeks but unexpected events like these happen all the time. Throwing $20,000 into an illiquid asset is not the best way to prepare for emergencies.
Thinking About Affordability is Why So Many Americans Are Poor
I have so many friends that think about nothing but whether they could come up with the monthly payment at the time of purchase. Just today, my coworker was telling me that his friend is paying $650 a month on his car lease! His friend probably didn’t do this but if he takes out his calculator and do a little math, he will realize that he is actually paying $100,000 for a car that’s worth $40,000.
The simple and common example above illustrates the danger of thinking about affordability. Think about all those stories you hear of people who’ve accumulated massive wealth because of their frugal lifestyle. These people don’t buy that new gadget or new car because they don’t see the need, not because they can’t afford it!
A Couple Other Points to Consider Other than Affordability
Despite affordability not being a good sole reason to buy something, it is still something we should consider. On top of that, here are a couple good questions to ask ourselves when we believe we should buy.
- Is it necessary or is it nice to have?
- Is there a more economical version?
- Would most people in your situation want to buy it?
- Would you still buy it if you had time to think about it? In other words, is it an impulse decision?
- How is that going to affect your short and long term goals?
Mind you, I’m not saying that everything you buy have to be necessary. If it is Emma’s birthday, I wouldn’t hesitate to get her a birthday cake even if it’s not something I will say is “necessary” for our survival. So just use these questions to challenge yourself to think through every buying decision.
Your Turn
If all you thought about was affordability before, try to broaden your thinking because it will help you keep more of your money! For others that are already experts at this, what’s your secret? How do you determine what to buy and what not to buy?
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Great post! I’ve always said: Just because you CAN, doesn’t mean that you SHOULD.
Great questions to ask before making a purchase. I have to believe that most people buy products base on impulse and not reason.
In a way, I need to thank them because that’s what keeps the economy going!
One of the questions I ask myself a lot (and tell other people) about certain purchases or outgoings is “Can I afford it?”
Sometimes people look at me funny when I answer.
Of course, I can pay for it, that’s not the problem. But can I afford it? Usually the answer is no.
I try hard not to fall subject to the ‘can afford the payment’ thought pattern. I did that with college and student loans, now I get to spend ~$1,100 / month in payments. I could have probably done just as well in a state school but opted for a private school. Ouch.
Of course I could afford to pay for it, but that’s not the point. Why Would I/should I spend my money? What else could I be doing with that money that would be more financially responsible? How much interest would I lose? How much would it really cost me in lost savings etc?
The money I would spend is not just sitting there doing nothing - it is making me money every second it sits in an investment, so it would “COST” more than just the purchase price. Would it be worth jeopardizing my retirement $$/ your house down payment/ someone’s savings/ a kid’s college money? What affect does it have on the future? Those are the questions I ask.
If it costs over $100 it goes on a list inside my kitchen cupboard door, labeled “Wants”… If it’s still there a year later, and if I still really want it, then I’ll buy it. Sometimes in the meantime tho I have found a free one, a gift from family/friend, a hand me down, or a great garage sale find on the same item. Or sometimes I’ve found an entirely different solution that works just as well - such as making it myself. I’ve gotten awfully handy with tools since starting on my house reconstruction
Now, I do make exceptions to this list - such as when major appliances break down and need replaced… But that decision has already been made in my head and is not really a ‘want’ so much. But it will be a ‘no frills’ version
That’s my method and it’s worked well for me. Sure cuts down on impulse buying.
Unfortunately, the education system in the United States doesn’t teach kids how to avoid this pattern of though. Great article!
It’s sometimes tough to drive my paid for 9 year old car and feel like people are looking at me with pity, but it passes quickly as I remind myself that I really care about their shows of wealth about as much as they care about mine (hint: not at all).
So much of the “can I afford it” is really “can I impress other people with the fact that I can afford it” and as I was reminded this week when I saw a $7 MILLION home in the foreclosure notices, a lot of that is just smoke and mirrors.
Our own little “can we afford it” moment - we recently had a Lifetime Fitness franchise open in our town. This place is truly impressive, quite the hangout spot, but would cost us almost $200 a month to join vs the $17 a month we pay at Fitness 19. We actually thought about joining, but only in the context of “if we were going to forego a family vacation in return for having a year of dues at a place with a pool and gym and sauna, we could justify this.” We could afford it either way, still go on the vaca even, but in the perspective of whether or not it was worth trading off something else for it? Not so impressive. Many of my friends who are seriously on the ropes financially are members … desperately trying to prove to their “friends” that they’re doing OK. Why the desperation to keep up with the Joneses?
This post brought up a lot of feelings. A friend thinks I drive a “pile” (car). This car is 9 years old and has never had any major problems and it looks like most of the other cars on the road. It was paid off years ago and I have peace of mind. My prior car was a really nice car that I could afford in the beginning. I had to borrow money from my dad when I quit a higher paying job (long commute) and took a lower paying job (no commute) and couldn’t make the payments. Life felt oppressive until this debt was paid off. A fun car to drive, but not affordable after all. Though I kept it for 17 years. Life is better without monthly car payments.
Just the past couple of days, similar thoughts have been going through my head, as I related in On being prepared. I think many of us are too quick to spend and too slow to save. I’m just as guilty as the next person, many times, but articles like yours really helps me to refocus on what’s needful. Thanks!
I think people fall into this trap with the “I deserve it” mentality. Then can afford it and they deserve it so they do it. They never bother to think that they deserve a good retirement and only they can provide that for themselves. You deserve your salary for working (most of the time) but you don’t deserve to waste money on crap you don’t need at the cost of your future financial security.
The thing that makes me mad is that these people all think they need to be bailed and that it isn’t their fault that they’re in financial hardship.
Robert Kiyosaki says that saying “I Can’t Afford It?” immediately shuts off one’s brain to the possibilities that saying “How Can I Afford It?” allow for. While I prescribe to his thoughts, I think timing is also an important part of this process. There are many things we cannot afford now because we choose to get out of debt, buy a house, and have an emergency fund. Once these are taken care of then we can “afford” alot more even if we’re making the same money.
As far as cars, we haven’t had a car payment in over 10 years and cannot imagine living any other way. A friend got in my car the other day and said “Does the odometer really say 251,009 miles on it?!!” Yep and I plan plan on driving it until at least 300K. If you don’t have your “self worth” tied to cars and other things, life is so much cheaper.
PFAD - Totally agree. The whole “Secret” and “abundance” thinking is great and all, but maybe we need to dial back what we consider “abundance” - and compared to most of the people in the world, the fact that you have a car AT ALL makes you wealthy.
I don’t like to make those comparisons often (the “hey, it could be worse” ones) but darn it … we’re kinda spoiled.
Drifting off-topic, probably …
I agree with the skewed thinking of affordability. Back in high school, my friend and I got into shopping for deals. We knew how to find the best sales and the best bargains. Unfortunately, such single-mindness resulted in a closet full of clothes that I don’t really enjoy. I bought many item simply because they were relatively cheaper. This is the pitfall of affordability. Just because something is affordable, certain doesn’t mean it is a bargain. Good post David.