“Can I Afford It?” is a Terrible Filter

When deciding to make a financial purchase or not, the most common filter we use is, “Can I afford it?”

Is there enough money in the bank (or room on the credit card) to cover this purchase? If so, we can buy it.

From the home we live in, the car we drive, the vacations we take, the technology we upgrade, the clothes we wear, and everything in-between, most of us simply ask, “Can I afford it?”

I’ve seen this thinking in my own life. No doubt, you have experienced the thinking in yours as well.

Often times it is coupled with a “I deserve it,” mentality. As in, “I work hard for my money. I am going to spend my money on this. I deserve it, and I can afford it.”

But here’s the problem: “Can I afford it?” is actually a terrible filter for making financial decisions!

Or, let me rephrase that, “Can I afford it?” is a terrible filter if it is the only filter we use in making decisions about what to buy and how to spend our money. It’s not wrong in and of itself, it’s just incomplete.

Unfortunately, for many people, it is the only filter. If the money is in the bank, I can buy anything I desire. Why not? I can afford it.

But consider some of the reasons why it’s a terrible filter:

Financial Circumstances Change All the Time.

We’ve learned a lot about the world over the last 12 months. One lesson I hope we’ve all noticed is that financial circumstances can change in a heartbeat—almost without warning.

If my decision to buy a house at the very top of my price range or take out a new auto loan was based solely on “Can I afford it?,” you may be surprised how quickly that can change.

It is Entirely Subjective.

Read financial experts online and you’ll immediately find different advice about how much you can afford:

“Spend 28% of your income on housing.”

“The 28% rule is outdated.”

“Never buy a home without 10% down payment.”

“Buy a home as quick as you can—even if you don’t have a down payment.”

“When you are buying a new car, make sure that you put down at least 20% of the total cost and finance the new vehicle for no more than 4 years.”

“When you are buying a new car, always pay cash and never take a loan.”

Each of those contradictory pieces of advice can be found online.

And that doesn’t even begin to account for the advice given on saving, retiring, debt repayment, college savings, giving… or what order of priority those should be placed in your life.

Can I afford it? is a terrible filter because the answer is always subjective. Heck, we might even change our own mind from day-to-day on what we can afford.

It Doesn’t Count the Full Cost of Our Purchase.

The amount listed on a price tag is never the full cost of a purchase. Everything we purchase needs to be brought home and eventually cleaned, organized, cared for, and maintained. Everything we buy takes up physical space in our home and mental space in our mind.

Many of our purchases result in extra expenditures, whether directly or indirectly. Do I have enough money, right now, to afford this item? rarely factors in the ongoing cost of keeping or maintaining our purchase.

It Doesn’t Factor Opportunity Cost.

There is no such thing as a free lunch. Every purchase carries additional opportunity cost. Spending $100 on x today means I do not have $100 to spend on y tomorrow.

This is why “Can I afford it?” is such a faulty, short-sighted filter.

I may have the money to buy a bigger house, a nicer vacation, or a newer car, but once the purchase is completed that money is no longer available for other things. And it may not take long to realize there were countless other things I could have spent my money on that would have resulted in much longer-lasting happiness, joy, and fulfillment.

Better Filters

So, what questions can I ask in addition to “Can I afford it?”
Let me offer five:

1. Does this purchase support my goals?

What are the dreams you have for your life? What accomplishments are you hoping to achieve? What goals are most important to you? Does this purchase move you closer to those goals? Or further away?

2. What are my motivations for this purchase?

Am I spending my money on this purchase for the right reasons? What are they exactly? Am I buying this just because everyone else is buying it, because I’m trying to impress someone, or are my motivations truly healthy?

3. What do my trusted friends think about this?

There is no need to make financial decisions in a vacuum—especially major ones. Ask a family member or friend or mentor for their opinion. Make sure it is someone you trust and would generally consider wise in these types of matters. If you are religious, “praying about it” would fit in this filter.

4. Is there something else I would like to spend my money on?

When counting the opportunity cost of a purchase, don’t compare only apples to apples. The filter doesn’t need to be exclusively, “Should I buy this car or this vacation?”

We should also factor in opportunities such as getting out of debt, getting ahead financially, or giving to a cause we believe in. Spending money on a purchase “just because I can afford it” often makes these greater pursuits harder to achieve.

5. What would my life look like if I said no?

We often find ourselves debating a purchase because we’ve considered what benefit the purchase will bring into our lives. But rarely do we take the time to honestly evaluate what benefits might arise if we said no.

But with every purchase, we sacrifice a small amount of freedom. This one, simple filter helps us recognize exactly what that is.

Before I conclude, let me be clear on two important points:

First, it is smart to ask ourselves, “Can I afford it?” I mean, if you can’t afford it, you shouldn’t buy it—case closed. I just think this filter carries too much significance for most of us. And by itself, it is terrible.

Second, this post isn’t contending that we never make any purchase. That would be foolish. To live is to consume and many of the purchases we make do bring value to our lives.

This list of better filters isn’t meant to deter anyone from ever spending money again. It’s simply designed to help all of us make better choices.

Because in and of itself, “Can I afford it?”, is a terrible filter for financial decisions.