“Can I afford it?” is a question many people ask themselves—for everything from home buying and car loans all the way down to seemingly insignificant purchases. And although it’s a very common inquiry, the word “afford” can mean different things to different people. It’s not some hard and fast data-driven analysis.
Depending on the person’s financial situation and personal finance philosophy, being able to afford something could mean:
- It doesn’t zero out or overdraw their checking account.
- It doesn’t max out their credit card.
- They could manage the monthly payments.
- They’ve budgeted for the purchase.
- They’re paying cash for the purchase.
But because we don’t have a universally accepted test for the concept of “afford,” it’s not an easy question to answer.
What You’re Really Asking
Once I realized there’s no real math behind a person’s use of can/can’t afford it, I wondered more about what thoughts and feelings drive the use of the phrase. I speak Spanish, so I turned there to see if the translation would shed light.
Now, I spoke Spanish all day, every day for two years of my life, and I couldn’t come up with a way to express the idea of “can/can’t afford it.”
So I turned to Google.
As a translation for “afford,” Google Translate offers permitirse. Ah ha.
Permitirse means “to permit oneself.”
“I can’t afford it” becomes “no me lo puedo permitir.” I can not permit myself.
“I can afford it” becomes “me lo puedo permitir.” I can permit myself.
The Spanish translation of this concept of “afford” seems more honest: I can or can’t permit myself.
In other words, we want to attach some sort of mathematical validation to our use of “afford,” but it really comes down to whether or not we give ourselves permission—whether or not we feel justified in making this purchase. Whether we recognize it or not, there are some big emotions around money.
And sometimes we know from an objective mathematical standpoint that we cannot afford something, and in those cases, asking, “Can I afford it?” is more of a mental checkpoint designed to allow you a moment to consider the possibilities while also keeping you from making a decision you may regret.
How to Know if You Can Afford Something
When you’re trying to decide if you can afford something, ask yourself these questions instead:
- What else would I buy with this money?
- How much would these dollars be worth to me if I invested rather than spent them today?
- What value does this purchase bring me immediately?
- What value does this purchase bring me over the long term?
Let’s be practical—I’m not saying you have to answer these questions every time you have the urge to grab a coffee with a friend, although that would be pretty funny:
“Hey, want to grab a coffee?”
“Sure, just have to fill out this short questionnaire about the short and long term consequences of the purchase. Gimme two minutes.”
Eventually, no one would invite you for coffee anymore.
Analyzing the Costs
Yesterday I sold an old treadmill that was no longer being used for $600 (woohoo!). Now the cash is sitting in an envelope in the kitchen, and I’m already mentally spending it on new workout equipment. I’ll buy the equipment having fully acknowledged the costs, such as:
Buying the equipment means not paying off a portion of my highest interest credit card debt. Essentially, I’m acknowledging that I’m basically financing the new gym equipment at the interest rate of my highest interest debt. Put that in my pipe and smoke it, huh?
Not putting the money in the market, where it would theoretically be worth around $1,556 ten years from now (if it earned around 10% per year).
Not using it to buy any number of other things on our wants list. (It’s a long list.)
These are the costs. I’ve laid them out. And now I can decide if I value the benefits of the gym equipment more than those other things. If I do, well, I’m going to buy that gym equipment and feel great about it. But if I would rather invest the money for a return down the road, or pay off debt, well then I’m better off skipping the gym equipment and putting the money towards the thing I value more.
And the crazy thing? That value judgment and prioritization is up to me! So asking “can I afford it?” is a simple decision—once you know your tradeoffs.
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