Can You Afford It?

Maybe something flashy like a trip to Portugal or a dream apartment catches your fancy and you like it love it gotta have it. Or maybe you need a washing machine and you’re deciding between the 10-year old Maytag on Facebook Marketplace or something new with all the bells and whistles. The question is: Can you afford it?

I’ve heard this question answered many ways:

• “Thinking about money makes me nervous so let’s just say I can afford it.”

• "Thinking about money makes me nervous so let's just say I can't afford it."

• “I can afford it because I have the cash for it right now!”

• “I can afford it because I can afford the minimum monthly payment.”

• “I can afford it because it’s on sale! I can’t pass up a great deal.”

If these answers are any indication, we’re asking the wrong question.

I propose we shift from asking “Can I afford it?” to “How will this impact my finances?” 

I like this reframe because:

• This approach shows how all of your money is connected. Buying more of this means less of something else. You have to be clear on your priorities to decide if it’s worth it.

• If you have combined finances with your partner, this framing avoids the “We can afford it!” - “No we can’t!” argument and creates the foundation for a collaborative conversation. 

• So many kids grow up hearing “We can’t afford it,” but never really learning about money. This approach helps kids understand the value of a dollar and financial tradeoffs from a young age. 

I dunno, how will this impact my finances?

Let’s walk through the steps to find out. To be clear, today we’re talking about large purchases – the kind that you genuinely don’t know if you can afford or not – that you have not saved up for already. 

1. Start with the basics.

• How much do you make every month?

• How much do you spend? 

• Save?

• Invest? 

• Pay off debt? 

Pro tip: A Conscious Spending Plan –  shoutout Ramit Sethi – is a great way to visualize your money flow.

2. Consider where the money will come from for this new purchase. If you haven’t already saved up for it, the money has to come from somewhere! Does it give you less room for your monthly expenses? Does it delay your debt payoff date? Does it mean fewer dinners out for a while?

3. Decide if the tradeoff is worth it. There really is no right or wrong answer, just the answer that aligns with your priorities. You can spend your emergency fund on your dream car. You can invest more in your wardrobe than your Roth IRA. You really can! You just need to do so with full awareness and ownership of the tradeoffs that you’re making.

What if I really really want it?

You may run the numbers and find that you aren’t comfortable with the tradeoffs the purchase would require. But you still really want it! Now’s the time to ask, not “Can I afford it?” but “When can I afford it?” or “How can I afford it?”

Some suggestions:

• Put money aside monthly in a labeled savings account just for that thing – buy it when you have the money in full.

• Start contributing to a sinking fund for when large expenses come up.

• Find other items that you can cut from your budget to make room for this purchase.

• Would a refurbished, used or knockoff version suffice?

What this looked like for me

You didn’t ask but I’ll tell a personal story as an example. I recently decided to get back into therapy, but – surprise! – my insurance wouldn’t cover it. Paying out of pocket would cost me hundreds of dollars a month and I had no idea if I could afford it.

So I asked myself: if I added this recurring expense, could I still pay for rent and fixed costs, hit my monthly investing and savings goals, go out to eat a few times a month, buy plane tickets to visit my friends and family, and still pay my credit card down to $0 every month? And the answer was… no.

But my husband and I have agreed that physical / mental health is a priority of ours so we opened up our Conscious Spending Plan to see where we could find a tradeoff. We decided that for four months, we would reduce contributions to our travel savings account and to my emergency fund (I have four months worth of savings but am aiming for six) so that I can go to therapy without taking on debt. Right now it is feeling well worth the tradeoff but I will reassess in a few months. 

Money Coaching is all about reframing how we think about money and this is just one example. If you’re ready to start asking better questions and getting answers that actually mean something, let’s chat!