What Does The Word “Afford” Mean, Really?
The word “afford” means different things to different people. For some, it means “do I have enough money in my bank account right now to pay for this item?” For others, sadly it means “can I borrow enough money at a low enough rate to narrowly avoid bankruptcy to buy this thing?” For others still, it means more along the lines of “will buying this negatively impact my ability to reach my long-term financial goals?” While I definitely fall more into the latter category, there’s a lot more to in than that. After all, life is all about finding balance between long-term goals, short-term goals, and daily pleasures.
The Definition Of “Afford”
This post was inspired by a post I read on Well Heeled Blog entitled, fittingly enough, “The Definition Of Afford.” In it, WellHeeled outlines what the word “afford” means to her. This post is an attempt to spell out, to myself as much as to anybody else, exactly what the word means to me and how I integrate it into my daily life.
Will This Purchase Improve My Quality Of Life?
This is the most important consideration for me, and it’s all about value. I don’t mind buying something expensive if I’ll get a lot of value out of it. For example, I don’t really watch much TV so I don’t own a big plasma TV. Would it be nice to have a $2000 television? Of course it would. But there’s no way I would get good value out of a purchase like that taking into account how little television I actually watch, so I don’t own one. On the other hand, I do enjoy a nice meal out and don’t hesitate to drop $80 on a good meal every once in a while. I consider a good meal with good company a good bargain at twice the price. And that $5 latte? Screw it, I love coffee! And I’m going to continue wasting money on good coffee, than you very much.
Will This Purchase Enable Me To Meet Long-Term Financial Goals?
Will I have to go into debt to make this purchase? For some things, such as a house, that’s probably unavoidable for most people. But going into debt into debt on its own isn’t enough to disqualify a purchase as “unaffordable.” For example, if the home I buy appreciates in value over the years while my mortgage payment stays the same, I will almost certainly come out ahead versus long-term renting. Similarly, where I live in Atlanta you pretty much have to own a car. Public transportation sucks unless you live and work in very specific areas of town. Thus, most Atlantans simply have to have a car to get to work every day. I think “getting to work” would fall under the “enable me to meet long-term financial goals” category, so the purchase is reasonable. I’m not going to go out and buy a Porsche or anything, but my Toyota was certainly a reasonable and affordable purchase.
Will This Purchase Negatively Affect My Ability To Meet Long-Term Financial Goals?
The flip-side of the above, any purchase that will negatively affect my ability to meet my long-term goals is unaffordable, no matter how small that purchase may be. If that $5 latte was really truly causing me to have to cut my 401k contributions I might have to reconsider. But even in that case, I think the most reasonable solution to that problem is to find a way to earn more money, not cut small expenses from the budget. It’s true cutting recurring expenses can have a positive impact on your bottom line in the short term, but at the cost of a lowered standard of living. Remember, it’s okay to spend money on things that truly make you happy. The trick is knowing which is which.
Put in my concrete terms, my target is to save 30% of my pre-tax earnings every single month. If a purchase makes it so that I won’t be able to save 30% of my pre-tax income, I probably can’t afford it. If not, I usually feel comfortable buying pretty much whatever I want so long as I meet that minimum standard of savings. Even frivolous purchases are fair game at that point.
Am I Buying This For Me Or For Social Status?
I get it: iPhones are cool. They are useful. They make pretty pictures and fun noises. But do I need one? No. Would it improve my quality of life even slightly? Probably not. The only reason I can think of that I would buy an iPhone, realistically, is to be able to say I have an iPhone. Is there anything wrong with that? Not really. And if I’ve already met my 30% savings target, there’s really no harm in buying an expensive gadget. But it’s important to at least see the purchase for what it is, and that’s to buy social acceptance. And yes, despite this example I am going to be buying a smart phone in the near future. It probably won’t be an iPhone, though.
What Is Your Definition of “Afford?”
You are bound to agree with some of what I’ve said and disagree with others, and that’s fine. Everybody has a different idea of what it is to be able to afford a purchase. The exact definition doesn’t matter so much, I don’t think, as the fact that you’ve actually sat down and thought about what’s important to you personally. So what about you? What criteria do you use to judge whether or not a purchase you’re considering is affordable?