Recently I gave you a set of criteria to use when wondering if you can afford something. Whether that “something” is a pair of shoes or the trip of a lifetime, I listed a number of questions you can ask yourself to objectively decide if your budget/savings can withstand the expenditure.
Even if you can afford something, it doesn’t necessarily mean that you buy it, or that spending the money is a good idea. I could have technically afforded to stay in the very expensive apartment I moved out of last fall - I had enough positive cash flow, was already saving enough for retirement and other goals, and really got value out of living there in the form of a free gym and a walkable commute, among other things. With that being said, I knew in my heart that it wasn’t the best financial move.
Should you spend the cash?
Whether or not you should buy something it substantially less objective than whether you can afford to buy something. With that being said, I’m going to attempt to help you figure out whether something is a good idea over the long run. In the future, if you want something, know you can afford it but aren’t sure you should buy it, ask yourself these questions:
- What else you could do with the money? If you didn’t buy the item, what would you do with the money? In my case moving to a cheaper apartment allowed me to pay down my student loan faster and sock away more money for future large expenses such as a car. If you honestly don’t have a better use for the money, move on to the next question. But if the money could instead bulk up your retirement savings or go to your child’s slightly-lacking (or non-existent) college fund, maybe you should put off your purchase for now.
- How might your financial situation change in next 6-24 months? Maybe you can afford the item now, because you just got a huge bonus from work for the 4th year in a row – but if your company just announced that bonuses were being discontinued, you might not want to allow yourself quite as much of a splurge. If you think you or your spouse might lose or quit your job, go back to school or do something else that will change your income, it’s likely that you shouldn’t spend the money.
- If you didn’t buy it, how would your life be different? Simply put – can you live without it? Alternatively, is your life going to be substantially easier/better/more rewarding if you do buy it? This question is attempting to determine how much the item is worth to you – not just in terms of tangible/monetary value but in terms of its impact on your quality of life. If you find you really wouldn’t care if you didn’t buy it, you can feel confident that buying it might not be a smart decision.
- Will you get the chance to buy/do this thing again relatively soon? If it’s kind of a one time deal, and you can afford it, and you are satisfied with your answer to the rest of the questions – then buy it! But if you are feeling unsure and know the opportunity won’t go away, put it off for a bit.
- Is the price likely to go down while you can still purchase and use the item? When I was in college, I refused to buy anything from the local GAP for full price. People who shopped in that particular neighborhood were either college students on a budget or older, more established residents who shopped at higher-end stores. For that reason, an item almost never sold out before it went on sale. If I liked something, I could be reasonably sure that I could get it for 20-40% in just a matter of days or weeks. Today, if I see an item I like and there is only one in my size, I might buy it even if it’s regular price. But if there’s a whole bunch of them I’ll wait. Similarly, if I know I am planning a vacation 6 months away I can wait 1-2 months to see if the price will go down. Even when I can afford full price, I always welcome reductions – I know there are lots of things I can do with the extra money!
- Are there acceptable substitutes? Can you live in a similar neighborhood for $250 per month cheaper? Can you stay in a close, cheaper suburb instead of downtown on your vacation to a big city? Can you buy a pair of Nine West shoes instead of the Manolos you covet? And the biggest question – assuming you can afford both the original item and its cheaper substitute, can you get comparable value/happiness from the cheaper item? Be honest with yourself: take the substitute if it really doesn’t matter, but allow yourself the splurge if the answer to the question is truly no.
The Bottom Line
If you can truly afford it, and truly want it, and truly believe that whatever “it” is is worth the cost – buy it. Everyone has things they value – for some it is high-end restaurants, for others it’s early retirement, for still others it’s a vacation home.
But if you can do without it and could possibly be better (financially) off if you skipped it, consider waiting for now. Saving the money today might enable you to afford something even better tomorrow – and with the flexibility of money in the bank, you can always change your mind later!
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