can I afford X?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
learning_head
Posts: 836
Joined: Sat Apr 10, 2010 6:02 pm

can I afford X?

Post by learning_head » Wed Oct 23, 2013 11:14 am

If someone asks you "can I afford X", how do you decide? (For simplicity, say X is a single number and already includes TCO (total cost of ownership, like maintenance expenses, etc))

Wonder if there is some metric... I am guessing if there is one, it would be based on net worth, income, income risk (e.g. job stability), and expected future expenses. Thoughts?

sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Re: can I afford X?

Post by sscritic » Wed Oct 23, 2013 11:22 am

I don't decide what other people can afford. I would presume that they decide for themselves. On the other hand, I can be awfully judgmental. :)

The Wizard
Posts: 12162
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: can I afford X?

Post by The Wizard » Wed Oct 23, 2013 11:23 am

That entirely depends on the UTILITY of the item that X dollars is going to be spent on.
I'd spend $30,000 on a new pickup without too much hesitation.
But I'd be disinclined to spend the same amount on a work of art for my house...
Attempted new signature...

sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Re: can I afford X?

Post by sscritic » Wed Oct 23, 2013 11:25 am

The Wizard wrote:That entirely depends on the UTILITY of the item that X dollars is going to be spent on.
I'd spend $30,000 on a new pickup without too much hesitation.
But I'd be disinclined to spend the same amount on a work of art for my house...
But would you tell your neighbor to buy a new truck but not to buy art work for the same price?

YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: can I afford X?

Post by YDNAL » Wed Oct 23, 2013 11:26 am

learning_head wrote:If someone asks you "can I afford X", how do you decide? (For simplicity, say X is a single number and already includes TCO (total cost of ownership, like maintenance expenses, etc))

Wonder if there is some metric... I am guessing if there is one, it would be based on net worth, income, income risk (e.g. job stability), and expected future expenses. Thoughts?
We can afford whatever it is, IF income already provides sufficiently for A, B, C, D.... - one or more being adequate *savings*.

Now my question: do you need X ? The answer is subjective, personal, and varies from individual to individual.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

The Wizard
Posts: 12162
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: can I afford X?

Post by The Wizard » Wed Oct 23, 2013 11:29 am

sscritic wrote:
The Wizard wrote:That entirely depends on the UTILITY of the item that X dollars is going to be spent on.
I'd spend $30,000 on a new pickup without too much hesitation.
But I'd be disinclined to spend the same amount on a work of art for my house...
But would you tell your neighbor to buy a new truck but not to buy art work for the same price?
No, because both utility and checkbook size vary from person to person...
Attempted new signature...

User avatar
VictoriaF
Posts: 18525
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: can I afford X?

Post by VictoriaF » Wed Oct 23, 2013 11:32 am

This is one of those questions where if one is asking it, the answer is 'no.'

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

Ungoliant
Posts: 61
Joined: Sat May 22, 2010 9:23 pm

Re: can I afford X?

Post by Ungoliant » Wed Oct 23, 2013 11:33 am

That's really the wrong question to be asking because it only looks at one side of the equation: the cost relative to your assets or cash flow. The real question to ask when considering a purchase is, "Is x worth its asking price?". The answer to that depends not simply on whether you can "afford" it, but on how useful the item is to you, which is more subjective and different for each individual. Buying things just because you can afford them, without any regard for their utility, is a good way to find yourself living paycheck-to-paycheck regardless of your income and unnecessarily extending your working years.
Last edited by Ungoliant on Wed Oct 23, 2013 11:41 am, edited 1 time in total.

User avatar
Dutch
Posts: 1277
Joined: Thu Jun 27, 2013 2:12 pm

Re: can I afford X?

Post by Dutch » Wed Oct 23, 2013 11:38 am

learning_head wrote:If someone asks you "can I afford X", how do you decide? (For simplicity, say X is a single number and already includes TCO (total cost of ownership, like maintenance expenses, etc))

Wonder if there is some metric... I am guessing if there is one, it would be based on net worth, income, income risk (e.g. job stability), and expected future expenses. Thoughts?
"Can I afford X?" This is the Suze Orman disease.

I don't understand people who ask the question and I don't understand people who feel compelled to answer the question for somebody else.

User avatar
VictoriaF
Posts: 18525
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: can I afford X?

Post by VictoriaF » Wed Oct 23, 2013 11:39 am

Dutch wrote:"Can I afford X?" This is the Suze Orman disease.

I don't understand people who ask the question and I don't understand people who feel compelled to answer the question for somebody else.
That's OK, for as long as you understand Suze Orman.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

an_asker
Posts: 2135
Joined: Thu Jun 27, 2013 2:15 pm

Re: can I afford X?

Post by an_asker » Wed Oct 23, 2013 11:40 am

learning_head wrote:If someone asks you "can I afford X", how do you decide? (For simplicity, say X is a single number and already includes TCO (total cost of ownership, like maintenance expenses, etc))

Wonder if there is some metric... I am guessing if there is one, it would be based on net worth, income, income risk (e.g. job stability), and expected future expenses. Thoughts?
If - and when - I answer such a question, it is more like 'what would I do' if I were in the asker's shoes!

User avatar
VictoriaF
Posts: 18525
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: can I afford X?

Post by VictoriaF » Wed Oct 23, 2013 11:43 am

Ungoliant wrote:That's really the wrong question to be asking because it only looks at one side of the equation: the cost relative to your assets or cash flow. The real question to ask when considering a purchase is, "Is x worth it's asking price?".
The "worth asking price" approach can be very treacherous. On one side of the spectrum, people buy a lot of inexpensive junk on eBay and garage sales. On the other side of the spectrum, people buy cars and houses they can't afford but that are worth more than the asking price.

Victoria
Last edited by VictoriaF on Wed Oct 23, 2013 11:44 am, edited 1 time in total.
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

less
Posts: 158
Joined: Mon Sep 16, 2013 12:38 pm

Re: can I afford X?

Post by less » Wed Oct 23, 2013 11:44 am

Ungoliant wrote:That's really the wrong question. The real question is, "Is x worth it's asking price?". The answer to that depends not simply on whether you can "afford" it, but on how useful the item is to you, which is more subjective and different for each individual. Buying things just because you can afford them, without any regard for their utility, is a good way to find yourself living paycheck-to-paycheck..
+1
The answer you get to the question "Can I afford it?" is usually "Will someone lend you the money to buy it". Which should be irrelevant. If you have the money, chances are you have already made the trade-off between other possible uses of the cash, and aren't asking the question.

MoonOrb
Posts: 959
Joined: Thu Jan 24, 2013 6:58 pm

Re: can I afford X?

Post by MoonOrb » Wed Oct 23, 2013 11:46 am

I think the questions of "can I afford X" and "is it a worthwhile use of money to pay for X" are slightly different.

The first question--can I afford X--is more or less math. Figure out what all of your committments are. Figure out what your long-term financial goals are, and about how much you need to invest to make their achievement likely. Subtract these from your income/cash on hand. If you have enough left over for X, you can afford it.

But that doesn't mean you will want to buy it, because the opportunity cost of purchasing X could be you could do something you like more, or you could buy something (or somethings) you like more. Or the utility you receive from the purchase of X just isn't worth the outlay for it.

I think both of these are important questions. But it's the first that separates you from financial disaster and financial security.

Ungoliant
Posts: 61
Joined: Sat May 22, 2010 9:23 pm

Re: can I afford X?

Post by Ungoliant » Wed Oct 23, 2013 11:52 am

VictoriaF wrote:
Ungoliant wrote:That's really the wrong question to be asking because it only looks at one side of the equation: the cost relative to your assets or cash flow. The real question to ask when considering a purchase is, "Is x worth it's asking price?".
The "worth asking price" approach can be very treacherous. On one side of the spectrum, people buy a lot of inexpensive junk on eBay and garage sales. On the other side of the spectrum, people buy cars and houses they can't afford but that are worth more than the asking price.

Victoria
That's true, I should clarify that by "worth" I mean its worth to you the individual, factoring in both your financial situation and your expected usage of the item. It's an extremely subjective analysis. Obviously I would not advise people to buy everything they can find on sale for less than its appraised value just because it's "worth it".

sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Re: can I afford X?

Post by sscritic » Wed Oct 23, 2013 11:55 am

Are "Can I afford X?" and "Can you afford X?" the same question? I thought I knew the difference, but after reading this thread, I am starting to have my doubts.

Grt2bOutdoors
Posts: 19077
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: can I afford X?

Post by Grt2bOutdoors » Wed Oct 23, 2013 12:02 pm

If you have the cash to purchase X outright with no lien or payment plan - yes, you can afford it.
If you make 10 times what X costs on a payment plan - yes, you can afford it.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
Watty
Posts: 13842
Joined: Wed Oct 10, 2007 3:55 pm

Re: can I afford X?

Post by Watty » Wed Oct 23, 2013 12:05 pm

Within reason, for a middle class American the answer is;

"You can afford anything you want, but just not everything you want."
Last edited by Watty on Wed Oct 23, 2013 2:46 pm, edited 1 time in total.

User avatar
VictoriaF
Posts: 18525
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: can I afford X?

Post by VictoriaF » Wed Oct 23, 2013 12:06 pm

sscritic wrote:Are "Can I afford X?" and "Can you afford X?" the same question? I thought I knew the difference, but after reading this thread, I am starting to have my doubts.
Are "Can I afford X?" and "Should I buy X?" the same question?

The answer to the latter is "Only if you can post it in both That Frugal Thing You Do and The Things You Splurge On Bogleheads threads."

Victoria
Last edited by VictoriaF on Wed Oct 23, 2013 12:08 pm, edited 1 time in total.
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

opus360
Posts: 203
Joined: Mon Sep 30, 2013 10:02 am

Re: can I afford X?

Post by opus360 » Wed Oct 23, 2013 12:08 pm

learning_head wrote:If someone asks you "can I afford X", how do you decide? (For simplicity, say X is a single number and already includes TCO (total cost of ownership, like maintenance expenses, etc))
Just say, show me the money... like Suze.

IlliniDave
Posts: 2294
Joined: Fri May 17, 2013 7:09 am

Re: can I afford X?

Post by IlliniDave » Wed Oct 23, 2013 12:08 pm

sscritic wrote:I don't decide what other people can afford. I would presume that they decide for themselves. On the other hand, I can be awfully judgmental. :)
This is true!

If I turn the question around to how I answer the question for myself, it's not straightforward. A lot depends on what it is. I have a hierarchy that's a function of where I am in life. Here goes ...

-If I can't pay for it without using someone else's money, the answer is, "no", right off the bat. (I already own my house, but a mortgage would be a possible exception for a younger me).

-If it's a luxury or a comfort (nice to have but ultimately optional) item, the criteria is whether it will substantially impact either my ability to procure necessities and/or my retirement date. If it negatively impacts either, the answer is, "no".

-If it's a true necessity I don't ask the question and pay the price.
Don't do something. Just stand there!

hsv_climber
Posts: 3969
Joined: Tue Sep 22, 2009 7:56 pm

Re: can I afford X?

Post by hsv_climber » Wed Oct 23, 2013 12:09 pm

Can I afford not to have X?

Sometimes answering a slightly modified question or a series of related questions can lead to a better answer.

staythecourse
Posts: 5881
Joined: Mon Jan 03, 2011 9:40 am

Re: can I afford X?

Post by staythecourse » Wed Oct 23, 2013 12:10 pm

Interesting question and no answer. If you are asking if you can "afford" it I think it would depend on if you can buy X without altering your other financial commitments, i.e. paying bills and savings rate.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

sls239
Posts: 928
Joined: Thu Oct 23, 2008 4:04 pm

Re: can I afford X?

Post by sls239 » Wed Oct 23, 2013 12:19 pm

I answer it with another question.

What are you willing to do to get it?

nodenuff2
Posts: 355
Joined: Tue Mar 06, 2012 4:08 pm

Re: can I afford X?

Post by nodenuff2 » Wed Oct 23, 2013 2:33 pm

Another question to ask yourself is "Could I keep it if I lost my job and it took 6 months to find another?"
2014 No. 42 2015 No.342 2016 No. 6 2017 238 what do I know? "Good bless America land that I love..."

User avatar
VictoriaF
Posts: 18525
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: can I afford X?

Post by VictoriaF » Wed Oct 23, 2013 2:35 pm

nodenuff2 wrote:Another question to ask yourself is "Could I keep it if I lost my job and it took 6 months to find another?"
A similar question is "Would I still want it if I lost my job and it took 6 months to find another?"

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Re: can I afford X?

Post by sscritic » Wed Oct 23, 2013 2:35 pm

nodenuff2 wrote:Another question to ask yourself is "Could I keep it if I lost my job and it took 6 months to find another?"
I never ask that of myself, but I do ask my neighbor, "could you keep it if you lost your job and it took 6 months to find another?" when my neighbor ask me, "can I afford X?"

an_asker
Posts: 2135
Joined: Thu Jun 27, 2013 2:15 pm

Re: can I afford X?

Post by an_asker » Wed Oct 23, 2013 3:01 pm

VictoriaF wrote:A similar question is "Would I still want it if I lost my job and it took 6 months to find another?"

Victoria
Another job or another "it"? ;-)

User avatar
VictoriaF
Posts: 18525
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: can I afford X?

Post by VictoriaF » Wed Oct 23, 2013 3:25 pm

an_asker wrote:
VictoriaF wrote:A similar question is "Would I still want it if I lost my job and it took 6 months to find another?"

Victoria
Another job or another "it"? ;-)
It depends on what the meaning of "it" is, is not it?

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

User avatar
abuss368
Posts: 12738
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: can I afford X?

Post by abuss368 » Wed Oct 23, 2013 3:32 pm

My "metric" is simple: As long as it does not impact our retirement planning and investing.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

User avatar
Bammerman
Posts: 297
Joined: Fri Apr 06, 2007 4:58 pm

Re: can I afford X?

Post by Bammerman » Wed Oct 23, 2013 8:59 pm

Sometimes my wife asks me (about something "big"), "Can we afford it?"

I answer, of course we can. We have enough money. But, we'll not have that money to spend on something else. It's just a matter of choosing between various "goods".

User avatar
LadyGeek
Site Admin
Posts: 47488
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: can I afford X?

Post by LadyGeek » Wed Oct 23, 2013 9:32 pm

This thread is now in the Personal Finance (Not Investing) forum (affordability of X). Note that Y and Z are off-topic.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Caduceus
Posts: 1693
Joined: Mon Sep 17, 2012 1:47 am

Re: can I afford X?

Post by Caduceus » Thu Oct 24, 2013 6:13 am

I find that the hardest "can I afford it" questions for me have to do with different classes of necessities that are ongoing expenses and not with the odd expensive item. For instance, do I buy conventional vegetables or organic ones? Or a great mattress for better sleep? Or excellent (as opposed to just ordinary) running shoes.

So far, for me, the compromise has been to buy high-quality for anything that has to do with healthy living or that will free up my time, but otherwise not to pay for possessions even if I can afford it, since those dollars could be better put to owning fractional interests in businesses through stock ownership. This has sometimes led to choices that some of my friends find hard to understand ... super-good mattress, but no bed (I think it was Livesoft that said he didn't own a bed until very late in life too?); organic food but no eating out; travel experiences but no car ... I've been much happier since downsizing my life to 8 boxes and a suitcase of clothes, much happier than when I had an entire apartment's worth of "stuff"! Until I have a family, "can I afford X" will always be pegged to the opportunity cost of owning wonderful businesses through investments.

User avatar
VictoriaF
Posts: 18525
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: can I afford X?

Post by VictoriaF » Thu Oct 24, 2013 7:41 am

Caduceus wrote:I find that the hardest "can I afford it" questions for me have to do with different classes of necessities that are ongoing expenses and not with the odd expensive item. For instance, do I buy conventional vegetables or organic ones? Or a great mattress for better sleep? Or excellent (as opposed to just ordinary) running shoes.

So far, for me, the compromise has been to buy high-quality for anything that has to do with healthy living or that will free up my time, but otherwise not to pay for possessions even if I can afford it, since those dollars could be better put to owning fractional interests in businesses through stock ownership. This has sometimes led to choices that some of my friends find hard to understand ... super-good mattress, but no bed (I think it was Livesoft that said he didn't own a bed until very late in life too?); organic food but no eating out; travel experiences but no car ... I've been much happier since downsizing my life to 8 boxes and a suitcase of clothes, much happier than when I had an entire apartment of "stuff"! Until I have a family, "can I afford X" will always be pegged to the opportunity cost of owning wonderful businesses through investments.
I buy organic produce too. I would never ask if I could afford it; it's a priority.
I think that the value of a good mattress is highly overrated. I sleep much better in a tent after a day of hiking than on a good mattress after a day of idleness.
Living without a car is fine for as long as it does not take much more time. One of your criteria is that an expense "will free up [your] time."

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

IlliniDave
Posts: 2294
Joined: Fri May 17, 2013 7:09 am

Re: can I afford X?

Post by IlliniDave » Thu Oct 24, 2013 7:49 am

VictoriaF wrote:I think that the value of a good mattress is highly overrated. I sleep much better in a tent after a day of hiking than on a good mattress after a day of idleness.
Living without a car is fine for as long as it does not take much more time. One of your criteria is that an expense "will free up [your] time."

Victoria
I like to optimize: The best sleep of all is on a good mattress after a day of hiking (or any substantial physical exertion)! :) My mattress is probably of higher relative quality than anything else I own, and definitely I have no regrets. But it's all fairly personal. Something that's a substantial quality of life booster for one person is often clutter for another person.
Don't do something. Just stand there!

Hector
Posts: 829
Joined: Fri Dec 24, 2010 2:21 pm
Contact:

Re: can I afford X?

Post by Hector » Thu Oct 24, 2013 1:50 pm

VictoriaF wrote:
Caduceus wrote:I find that the hardest "can I afford it" questions for me have to do with different classes of necessities that are ongoing expenses and not with the odd expensive item. For instance, do I buy conventional vegetables or organic ones? Or a great mattress for better sleep? Or excellent (as opposed to just ordinary) running shoes.

So far, for me, the compromise has been to buy high-quality for anything that has to do with healthy living or that will free up my time, but otherwise not to pay for possessions even if I can afford it, since those dollars could be better put to owning fractional interests in businesses through stock ownership. This has sometimes led to choices that some of my friends find hard to understand ... super-good mattress, but no bed (I think it was Livesoft that said he didn't own a bed until very late in life too?); organic food but no eating out; travel experiences but no car ... I've been much happier since downsizing my life to 8 boxes and a suitcase of clothes, much happier than when I had an entire apartment of "stuff"! Until I have a family, "can I afford X" will always be pegged to the opportunity cost of owning wonderful businesses through investments.
I buy organic produce too. I would never ask if I could afford it; it's a priority.
I think that the value of a good mattress is highly overrated. I sleep much better in a tent after a day of hiking than on a good mattress after a day of idleness.
Living without a car is fine for as long as it does not take much more time. One of your criteria is that an expense "will free up [your] time."

Victoria
I agree that its all about priority. You never think price when buying organic food and think value of a good mattress is highly overrated. Someone might never think about price when buying a good mattress. For me, I think mattress is one of the most expensive tangible products I have inside the home.

User avatar
LadyGeek
Site Admin
Posts: 47488
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: can I afford X?

Post by LadyGeek » Thu Oct 24, 2013 3:27 pm

I think there's a large emotional component here. Is the question based on a "want" or a "need"?

For example, you want X (just because...). You've allocated $$$ for X, but did not plan for it. In your mind, it's already spent.

Then, you find X on sale, so you buy it and justify the purchase because it saved (sale price difference) dollars. No. You spent $$$ dollars. That's mental accounting at its finest.

Additional examples are in the wiki: Behavioral pitfalls (Direct link to: Mental accounting)
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

surfstar
Posts: 1486
Joined: Fri Sep 13, 2013 12:17 pm
Location: Santa Barbara, CA

Re: can I afford X?

Post by surfstar » Thu Oct 24, 2013 4:54 pm

The question for me is: Do I really need X? Sometimes even when the answer is no, I might still want X, so I'll buy it.

If the question really is, can I afford X, then, as said before, the answer is no.

Fallible
Posts: 6462
Joined: Fri Nov 27, 2009 4:44 pm
Contact:

Re: can I afford X?

Post by Fallible » Thu Oct 24, 2013 5:07 pm

learning_head wrote:If someone asks you "can I afford X", how do you decide? ...
Because emotions are usually, if not always, involved in financial decisions, those have to be addressed and understood (know thyself) in addition to crunching the numbers. LadyGeek's post here on behavioral pitfalls, particuarly mental accounting, shows ways to do that.
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

Post Reply