When deciding to make a financial purchase or not, the most common filter we use is, “Can I afford it?”
Is there enough money in the bank (or room on the credit card) to cover this purchase? If so, we can buy it.
From the home we live in, the car we drive, the vacations we take, the technology we upgrade, the clothes we wear, and everything in-between, most of us simply ask, “Can I afford it?”
I’ve seen this thinking in my own life. No doubt, you have experienced the thinking in yours as well.
Often times it is coupled with a “I deserve it,” mentality. As in, “I work hard for my money. I am going to spend my money on this. I deserve it, and I can afford it.”
But here’s the problem: “Can I afford it?” is actually a terrible filter for making financial decisions!
Or, let me rephrase that, “Can I afford it?” is a terrible filter if it is the only filter we use in making decisions about what to buy and how to spend our money. It’s not wrong in and of itself, it’s just incomplete.
Unfortunately, for many people, it is the only filter. If the money is in the bank, I can buy anything I desire. Why not? I can afford it.
But consider some of the reasons why it’s a terrible filter:
Financial Circumstances Change All the Time.
We’ve learned a lot about the world over the last 12 months. One lesson I hope we’ve all noticed is that financial circumstances can change in a heartbeat—almost without warning.
If my decision to buy a house at the very top of my price range or take out a new auto loan was based solely on “Can I afford it?,” you may be surprised how quickly that can change.
It is Entirely Subjective.
Read financial experts online and you’ll immediately find different advice about how much you can afford:
“Spend 28% of your income on housing.”
“The 28% rule is outdated.”
“Never buy a home without 10% down payment.”
“Buy a home as quick as you can—even if you don’t have a down payment.”
“When you are buying a new car, make sure that you put down at least 20% of the total cost and finance the new vehicle for no more than 4 years.”
“When you are buying a new car, always pay cash and never take a loan.”
Each of those contradictory pieces of advice can be found online.
And that doesn’t even begin to account for the advice given on saving, retiring, debt repayment, college savings, giving… or what order of priority those should be placed in your life.
Can I afford it? is a terrible filter because the answer is always subjective. Heck, we might even change our own mind from day-to-day on what we can afford.
It Doesn’t Count the Full Cost of Our Purchase.
The amount listed on a price tag is never the full cost of a purchase. Everything we purchase needs to be brought home and eventually cleaned, organized, cared for, and maintained. Everything we buy takes up physical space in our home and mental space in our mind.
Many of our purchases result in extra expenditures, whether directly or indirectly. Do I have enough money, right now, to afford this item? rarely factors in the ongoing cost of keeping or maintaining our purchase.
It Doesn’t Factor Opportunity Cost.
There is no such thing as a free lunch. Every purchase carries additional opportunity cost. Spending $100 on x today means I do not have $100 to spend on y tomorrow.
This is why “Can I afford it?” is such a faulty, short-sighted filter.
I may have the money to buy a bigger house, a nicer vacation, or a newer car, but once the purchase is completed that money is no longer available for other things. And it may not take long to realize there were countless other things I could have spent my money on that would have resulted in much longer-lasting happiness, joy, and fulfillment.
Better Filters
What questions can I ask in addition to “Can I afford it?”
Let me offer five:
1. Does this purchase support my goals?
What are the dreams you have for your life? What accomplishments are you hoping to achieve? What goals are most important to you? Does this purchase move you closer to those goals? Or further away?
2. What are my motivations for this purchase?
Am I spending my money on this purchase for the right reasons? What are they exactly? Am I buying this just because everyone else is buying it, because I’m trying to impress someone, or are my motivations truly healthy?
3. What do my trusted friends think about this?
There is no need to make financial decisions in a vacuum—especially major ones. Ask a family member or friend or mentor for their opinion. Make sure it is someone you trust and would generally consider wise in these types of matters. If you are religious, “praying about it” would fit in this filter.
4. Is there something else I would like to spend my money on?
When counting the opportunity cost of a purchase, don’t compare only apples to apples. The filter doesn’t need to be exclusively, “Should I buy this car or this vacation?”
We should also factor in opportunities such as getting out of debt, getting ahead financially, or giving to a cause we believe in. Spending money on a purchase “just because I can afford it” often makes these greater pursuits harder to achieve.
5. What would my life look like if I said no?
We often find ourselves debating a purchase because we’ve considered what benefit the purchase will bring into our lives. But rarely do we take the time to honestly evaluate what benefits might arise if we said no.
But with every purchase, we sacrifice a small amount of freedom. This one, simple filter helps us recognize exactly what that is.
Before I conclude, let me be clear on two important points:
First, it is smart to ask ourselves, “Can I afford it?” I mean, if you can’t afford it, you shouldn’t buy it—case closed. I just think this filter carries too much significance for most of us. And by itself, it is terrible.
Second, this post isn’t contending that we never make any purchase. That would be foolish. To live is to consume and many of the purchases we make do bring value to our lives.
This list of better filters isn’t meant to deter anyone from ever spending money again. It’s simply designed to help all of us make better choices.
Because in and of itself, “Can I afford it?”, is a terrible filter for financial decisions.
Pat says
Oh bloody hxxx! I had just looked at a GORGEOUS diamond ring that I’ve wanted for years. I thought to myself, “I may just buy that ring this year,” and bookmarked it. Then I went on to check for your latest post. Your first question stopped me in my tracks: does it support my goals? Well, of course, it doesn’t support my goals. And now I won’t be buying it. Thanks, Joshua, I think. LOL! No, seriously – best question ever. Perfect and timely post.
Sharon Kindel says
Dear Pat!
You are not alone!
The twinkle of the diamond ring was mesmerizing but I likewise made the better choice and did the right thing! I am so glad I am taking this class!
I wish I knew what a minimalistic life meant 50 years ago!
Pat says
Sharon,
I agree with you — if I had known about this concept 50 years ago, I think my life would be different now (no complaints about how good it is though). I would have more money to help family and those who fall through the cracks, and there certainly would be less in the landfill. At least we understand now for the rest of the journey!
Best wishes!
SHANO says
DIAMONDS ARE A TERRIBLE INVESTMENT. BETTER TO BUY GOLD OR PLATINUM
Martin says
“Can I afford NOT TO buy it?” this is the question I try to ask myself. It is about the mindset, not about the financial situation.
Adell says
Fantastic post! Reading your peice today makes me feel good (literally in my stomach) about keeping my money in savings today and not spending it….because ‘Do I really need it?’
I loved the thought about, what will it cost you if you don’t buy it????
Fantastic Joshua!!
Billie Rountree says
really valuable information that I will keep with me. new ways of thinking about spending and the real cost of my purchases. especially liked what would happen if I said no. one of the best articles I’ve read on minimalism ever. thank you for helping clarify what knew but couldn’t put into words
B. Chiles says
One of your best posts ever. Gets to the heart of our illness – rampant consumerism. I have your book, read your email messages and I am making progress in clearing away the clutter. My goal is to make things easy for my sons when I pass. :-)
Nicola says
Another question I have recently being asking myself is, “Will this ‘thing’ make my life simpler or not?
I have always considered myself to be fairly minimalist. Then, to support a friend, I started to declutter the KonMari way about 4 years ago. I estimate that I discarded about 70% of the items in my family home. This was surprising to me and since then I have been even more minimal.
More recently, I had a house fire which destroyed 100% of my items. Now I am having to start from scratch and re purchase items to make a home. Every purchase it being fully interrogated before making it’s way into my house. It is interesting to see how few items make the cut!
Oakleymom says
This is a really helpful way of re-phrasing the things we (who weren’t born Rockefellers) need to consider when spending our hard-earned money. I struggle and spend more when I feel hurt, or depressed, so to think about “does it support MY goals” puts the focus back where it should be and actually helps to combat those negative feelings by knowing that I’m taking care of myself by not spending instead of hurting myself (and only myself) by overspending. Thank you!
Maria Pinto says
I got out of the credit card unreality years ago after paying off debt and interest, & after a time of not using the card the credit card company canceled the credit & I happily cut up the card. That was a huge burden off my shoulders. Thanks for the reminder.
Joy Priem says
I have many many drawings out of my former design life. Quite a few of them are from B Altman and Company, NYC, Fifth Avenue. In addition I designed jewelry, clothing, too many things to list throughout the years. Since then, after leaving 30 years as a feng shui master, I am going back to being an artist, writer and jewelry designer. Need to ditch the rest.HELP!!!
Rebecca says
Wow! “Does this purchase support my goals?” I have asked myself the other questions before a purchase, but never this one, which made my brain go “zing.” It is going on my quote board in bold writing. Thank you!