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“Can I Afford It?”

“Can I afford this?” It’s a question we commonly ask when we’re considering a purchase. That’s true whether “this” is a four-dollar fruit smoothie or iced coffee, a suit on the clearance rack, an expensive pair of shoes, a vacation cruise, a weekly housecleaner, or a new car.

Honestly, for the majority of my clients, the literal answer to that question would generally be “yes.” Many of them are retired or close to retirement age, and they have assets and cash flow at a sufficient level for them to be able to buy or do most of what they might want.

If you have a two-million-dollar investment portfolio and an income of $50,000 to $100,00 a year, of course you can afford things. You could walk into a dealership and buy a brand-new Hummer, or you could book a cruise to any place you wanted to go. And it’s absurd to say you “couldn’t afford” an expensive cup of coffee any time you wanted one. Heck, you could even go whole hog and have a scone or a muffin with it.

Yet, if I went through the list of examples in the first paragraph and asked my clients whether they could afford each one, a good many of them would answer “no” to several.

However, they wouldn’t literally be saying, “I can’t afford that.” More accurately, it would be, “To me, that isn’t worth what I would have to pay for it,” or, “There are other ways that I would rather spend my money.”

When you decide whether to spend a certain amount to buy or do something, you aren’t only thinking about how much disposable income you have. You are deciding whether the amount you spend will bring you an item or experience that is of value to you. That’s a separate question, one we don’t often think of in those terms.

Just because you could afford to buy something at full price doesn’t mean you think it’s worth full price. That’s why many of my wealthier clients continue to shop for bargains and to stop and think before they buy. That’s why some of them make a habit of buying clothes of excellent quality, but waiting until they are on sale. That’s why others travel in the off season or find other creative ways to see the world on a budget.

The flip side of this idea, of course, is that no matter how much of a bargain something might be, it’s of no value to you if you don’t want it. For me, a steeply discounted cruise represents a wonderful opportunity for a family vacation. If you get seasick in the bathtub and think the only way to get away from it all is to go backpacking in the mountains, that bargain cruise would give you no value at all.

What if you aren’t currently in the enviable position of being able to afford most of what you want? Learning to ask yourself the right questions before you buy might help you get there sooner.

Don’t limit your thinking to “Can I afford that?” If you have $20 of disposable income in your wallet, you probably can buy the movie popcorn or the Italian soda. Try asking instead, “Will this give me real value for what I spend?” or, “Will I get more value if I spend that money another way?”

You might still decide to get the popcorn, or instead you might put the money toward an IRA, a health club membership, or next week’s groceries. It all depends on what value you feel you’re getting for your money.

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