Can I Afford That?

I’ve been forced to think about this question a lot lately. If I have to borrow money in order to pay for something, can I afford it, really? If I have to borrow $30 to buy dinner for my family or even $300 to get new brakes, doesn’t that mean that I can’t afford it?

If you are thinking about spending $3,000 for a new flat-screen TV or $30,000 for a new car, but you have to borrow the money, that means that you are probably not in a good financial position to buy those items. In other words – you can’t afford it!

It’s really not that hard of a concept to get a hold of. If you do not presently have the money to pay for something, then you can’t afford it! In case you are wondering, my view of this doesn’t change with a mortgage. Borrowing $300,000 to “buy” a house, means that you can’t afford that house right now!

I know that people will talk about all the benefits to having a mortgage (pride of ownership, tax deduction, and even using it as a debt consolidation loan), but to me those are secondary issues that take away from the bottom line.

If you don’t have the money to pay for something and you have to borrow money (and pay interest) in order to buy it, then you can’t afford it! This is a simple concept, but many people will file for bankruptcy in the near future because they couldn’t get a hold of it. Many of us will continue to borrow and spend – hoping for unrealistic salary increases, asset appreciation, and even government intervention to bail us out!

I feel I must make something clear at this point…I do not have a problem with someone who has the ability (read: money) to pay for something outright, but they are purposefully incurring some debt because they are using their cash for investments from which they stand a reasonable chance of earning more than they are paying out in interest. Trying to leverage your money in order to wisely increase your investing gains is something that can be analyzed, calculated, and managed (of course, that doesn’t mean there aren’t risks involved).

What I am talking about is the constant need for everything to be financed in this country! You can finance a house, car, education, stove, sofa, computer, and practically anything else that you wish to buy. This means that people no longer look at whether they can truly afford something, but only if they can get by with monthly payments!

The biggest problem (besides feeding an already unfettered since of entitlement among most people) with all of this is that all of this debt is backed by depreciating assets (cars, furniture, electronics, etc) or things that no longer have any value (such as meals, old clothing, vacations, and a worthless degree in a subject you’ll never use)! Most people are not even in a position to sell their assets and pay off their debt!

In order to overcome this, we must learn to live below our means and think about more than our immediate desires! Debt consolidation is only an answer once you have taken care of the real problem! The same goes with any other type of hardship program or bailout you may receive.

In the end, it takes a change in thinking to stop this epidemic.

photo by renjith krishnan

