Can You Afford It?

Posted by Jill on August 10, 2015

Whether or not you’re a fan of Suze Orman or other financial experts, you’ve probably heard of her popular TV segment, “Can I Afford It?” On each episode of her show, callers ask permission to purchase items/experiences ranging from concert tickets to vacations to cars to second homes. Suze asks them a variety of questions about their financial situation and then approves or denies their request.

In many cases, your ability to afford a given item has nothing to do with the item’s price. If you are 55 with no retirement savings and up to your ears in debt, a $75 concert ticket might be a stretch even if you make $100k a year. On the other hand, even if you only make $40k a year but have no debt, healthy savings and a strong command of your spending, you may be able to afford a luxury vacation.

The point is you must consider your financial situation in its entirety before making a decision about one item. If you’re wondering if Suze would approve or deny your request, answer the following questions.

Do you have…

  • A solid emergency fund? Before you even think about shelling out big bucks for a “want,” make sure you have at least 3-6 months of expenses stashed away in a high interest savings account as an emergency fund.
  • Healthy retirement savings? If you want to retire comfortably, you need to be saving at least 10% of your income (including employer match). Before you consider a big purchase, make sure you have also amassed a suitable nest egg for your age. Translation: if you’re 40 and just starting, contributing 10% is not enough!
  • Minimal debt? Suze usually wants you to have no debt besides a mortgage before approving a big-ticket item. If you have very low interest student loans that you are consistently paying on, you can still answer yes to this question.

Will you…

  • Get your money’s worth? Don’t purchase an item that you’ll use twice before wanting the latest model. Don’t buy into a vacation package if you can create a similar itinerary yourself. Don’t buy a house at list price if it was appraised for $40,000 less. Whatever the item that you’re trying to afford, make sure it’s a worthwhile use of your money, even if you’re rolling in the dough.
  • Pay for it in cash? This is a biggie – if you’re taking on debt to buy something, you probably can’t afford it. When you identify something you want to buy, set up a savings plan well in advance of the target buy date. Exceptions: a house, NECESSARY education or transportation (not luxury cars!), or something you could pay for in cash but are financing at 0% instead.
  • Curtail other spending? If you buy this item, are you willing to sacrifice a bit in the future, and let other wants fall by the wayside for now? If this one splurge is going to kick off a buying binge, you may not be able to afford it.

If and only if the answer to all six questions is yes…you can probably afford it! Of course this doesn’t necessarily mean you should buy it.

How do you decide if you can afford something? And if you want something and can afford it, do you always buy it?

More Questions to Ask Yourself





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Comments to Can You Afford It?

  1. Jill,

    This was perfect timing! Obviously, since I’m constantly debating if we should buy a vacation home, this is really making me think!

    While I pass most of the questions with flying colors, the one about “getting your money’s worth” is making me stop in my tracks…. will we use it for one summer… and then move on to something else….

    Madison

    • Also don’t forget the multiple costs associated with maintaining a house when you’re not residing there. Insurance, taxes, water and sewer bill. Housesitter? Lawn maintenance? Turn off utilities or not?
      Hire someone to…keep up appearances? Shovel snow? Run over in case of severe weather?

      Linda. Winkler

  2. I used to watch her show all the time and it always amazed me what people wanted to buy.

    Linda

  3. What is this “high interest savings account” that you mention as where to stash your emergency funds? I mean besides in your dreams.

    Linda. Winkler

  4. And what is a “high interest savings account” and where would someone find one of these? As for Suze, she is easily the most annoying of all the financial gurus–hands down!

    Jack

  5. Linda & Jack
    I like to use the site Deposit Accounts to track the highest earning bank accounts. The 5% at Northpointe bank caught my attention… but it doesn’t look like the reviews are very good. I’ll have to open an account to see if it’s worth recommending…

    Madison

    • so the short answer is there isn’t such an account and this list perpetuates misinformation and probably is a rehash of some other column from when there might actually have been such a thing. Not very useful.
      I agree about Suze, very annoying!

      Linda Winkler

      • Hi Linda,

        The high yield savings accounts do still exist. We keep a list on our bank rates page.

        However, even though the banks still offer the accounts using the high yield name, obviously, the current environment is suppressing the rates.

        I know many readers are willing to explore some of the accounts with restrictions (like the Northpointe bank), which is why I mentioned the list at Deposit Accounts to earn a higher rate.

        Personally, I tend to favor CDs with interest rates being so low right now.

        Thanks for you comments! They are always appreciated. And I agree about Suze too; I’m not a fan!

        Madison


      • Madison,
        Since there isn’t an option to reply to your comment, I am replying to mine. Those accounts are what I would refer to as “so called” high interest accounts when they only pay in the range or 1% or even less. Again, I think it perpetuates misinformation to repeat that label and not clarify. Also, how important is that item on the list, if it only pays 1% anyway? Negligible.

        Linda Winkler


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