On Friday, I talked about my experience at the country club and a large debt that we will attack hard. I mentioned how I needed to back off from rolling my eyes about people who choose to spend their money on a country club but that I cannot think about anything like that for a very long time because of my needs for getting rid of debt, investing, and saving.
My financial goals are as follows:
- Pay off student debt
- Pay off mortgage
- Invest and save for retirement (well before 65)
- Invest and save for future children’s college funds
All of these items require some serious dollars and some serious dedication. In my group of friends, and even among coworkers, I am the guy that doesn’t go out to eat, doesn’t buy brand-name clothes, tries to keep his car until it starts breaking down, and so on. Because I have this reputation there are many instances where people can see it in my face that I am assessing if I truly need something or get outright appalled about the price of other things. The standard response I get is “Oh, you can afford it.” I know what they mean is to not let my budget-mindedness get in the way of fun or experiences (or they just don’t want me to embarrass them).
Interestingly enough, Miriam-Webster’s definition of afford is to manage to bear without serious detriment. The second definition is to be able to bear the cost of. I like that the second definition is the one that has what appears to be a more short-sited view of the word. It implies a one-time look as to how much an item is and how much money I have available. If I have more than the item costs, then I can afford it.
Let’s look at the first definition a bit closer. Of course, serious detriment is very subjective, therefore, it is likely only up to the person that is engaging in the transaction to decide if the outcome will be a serious detriment. To that same point, in the scenario I describe, the third-party people who say what I can afford do not have the whole picture of my finances. I may have incurred a multi-thousand dollar debt buying rare guitars that they do not know about and this cheeseburger they say I can afford is the last straw that will send me into bankruptcy.
Granted, this is unlikely, but it is worth exploring in a bit more detail what might be a serious detriment.
Borrowing Money
Again, comparing definitions, technically speaking, the second could be fulfilled by taking out a loan. The money would then be available to me to pay for an item. For the first, however, taking on a loan that will make the item cost more than it would if I could pay for it outright and make me susceptible to other financial hardships certainly is a detriment in most people’s books.
Considering Financial Goals
I mentioned what my long-term goals are to show that deciding affordability in the moment can certainly be detrimental to a long-term outlook. I think this might be where people’s idea of affordability differs. For me, buying things that lead to less savings and keeping me away from a comfortable retirement and avoiding federal student loans for my kids is a detriment to me. Furthermore, not putting a certain amount in savings and investing and missing out on gains is a detriment. Just like the loan example, purchasing the item that prevented me from saving more and gaining interest just got more expensive. Others may not see it this way and, therefore, their definition of affordable is different from mine.
Could Afford vs. Should Afford
What it comes down to is how a purchase falls into your own financial plan. If an experience or item is budgeted in and doesn’t infringe upon your goals, then it is affordable. If it does mean getting off track from your budget, it is important to really look at the expense and analyze if it is worth it. Can you cut somewhere else? Can you make some extra money elsewhere? Of course, only you can decide in the moment what is the correct course of action. Make sure to have an analysis rather than just handing over money.
Finally, check out this article on average credit card debt per household. Does $15,000 sound like somebody that is affording things? Does it seem like most people who tell you what you can afford have the same financial goals and outlook you do? How do you know? If you’re like me, you assume the answer is no and you remember why you make the purchasing decisions you do. So stay strong, stay the course, and make sure you really know what you can afford.
Do you get told about what you can afford? What is your definition?