Don’t Buy Everything You Can Afford

Whenever I hear people say, “We can afford it.” I feel a little nauseous. I break out in cold sweats. Everyone has a few pet peeves. This is mine. Perhaps this seems counterintuitive but let me explain.

how to afford financial freedom

1. If you can’t pay cash, you can’t really afford it

Affording the payments isn’t the same thing as affording the item. Affording an item starts with having so much cash in your bank account that you can pay for it outright. Just because there is $200 in your budget a month if your employer keeps paying you every 2 weeks, doesn’t mean you can afford it. What if they decide to stop paying you? Can you still afford it? If not, you can’t afford it.

Now somethings are hard to afford. Houses come to mind. But if we only focus on “affording the payment” we will never actually afford the item. A lot of people in their 60’s are still “affording” their house payment.

2. Buying things you can “afford” steals your options

There is an opportunity cost to every purchase. When we buy the things we can afford, we are giving that opportunity away. Not that we never purchase an item. But is that item worth giving up your future choices for?

You aren’t just spending your cash, your spending your options.

Ok, you have $600 in your checking account for that new cell phone. If you spend it, you don’t get to spend it again. Simple right? If you spend it, you can’t invest it. The choice is over. You might end up spending all your choices on things because you can “afford” them.

We have had some amazing opportunities to buy cash flowing property. Very simply, because we didn’t spend all those choices a few years early on things we could have afforded.

3. If you buy everything you can afford,

you will never create financially freedom

If we buy everything you can afford, we will never get ahead. Have you ever heard people talk about all the things they can “afford.” “We can afford a bigger house now. This new car fits into our budget. It’s great to be able to afford a nice vacation. We can afford to treat ourselves to a nice meal once a week.”

Often, it seems the people who insist they can “afford” something are the same ones living paycheck to paycheck, with no savings or investments. Maybe it fits in your budget. Maybe you have the cash. But if we buy everything we can “afford” we won’t ever create financial freedom.

Financial freedom only can happen when we DON’T buy everything we can “afford.”

We opted not to buy a LOT of things we could have “afforded.” Then the housing crash came. We had a lot of cash, from all those things that we could have afforded, but opted not to give away our choices on(point #2). So we had the choice available to us to buy some great rental properties. Everyone told us how “lucky” we were. Sure, we can call it luck. But honestly it boils down to not selling all our options away, so we had some options when we really wanted them. Like if the option to create some amazing passive income from rentals shows up, would you have that option? Can you be so “lucky?” If you save some of your options, you might be able to create enough financial freedom so that working jobs you hate become optional.

It took me a long time to recalibrate the way I looked at the things I could “afford.” If I was ever going to break the cycle of poverty and create some financial freedom, I would have to stop buying everything I could “afford.”

It’s a pet peeve out of love. I want the best for this person. I want them to have freedom. Choices. To be able to be Work Optional. I want their monthly nut to be low, so they have tons of flexibility. I want them to be able to jump on amazing opportunities. It just makes me sad to see them trade all that away. For what? Fill in the blank.

What should we trade that away for? Well, that is where “personal” comes into personal finance. I might trade away my freedom and choices away for something different than you would. That’s OK. As long as we realize what is essentially happening when we buy that thing we can “afford.”

For Conversation:

1. Have you ever justified a purchase because you could “afford” it, but later regretted it? (Me: jumping up and down and waving my hand wildly!)

2. Have you ever connected the dots on real life opportunity cost? I know exactly which rental we couldn’t afford to buy at a super discounted price because we decided to travel through 27 countries instead.

3. Have you noticed the more people try to convince you they can “afford” something, often the less likely that is true?

Please note: I reserve the right to delete comments that are offensive or off-topic.

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32 thoughts on “Don’t Buy Everything You Can Afford

  1. Just stopped by from Root of Good and this article caught my eye. I 100% agree with you!

    My wife and I have been fortunate. I’ve got an upwardly mobile consulting job. We’ve run a side business for years, and we’ve got a great portfolio that is heading us towards FIRE. I didn’t even know the term “FIRE” until 2 months ago when I started reading Mr. MM and was like, “Yeah – this is basically everything I think – and he’s got even more ideas than I do!” We’ve been crunching the numbers to see when we can pull the trigger.

    Bank balances aren’t perfect security. But they are strength. Wealth gives you options – whether that’s to take advantage of a deal or just weather a bad storm. Two years ago, in the midst of some major family stressers in our life, my wife backed our minivan through our garage door when it was closed! She’s not an absent-minded person, but the stress was killing us and she did it by accident while her mind was distracted. We took the opportunity to replace both older garage doors with new ones (we shopped that price around though!) But because we had cash in the bank many many times the value of those doors, it was a “no big deal” moment. We paid $1,600 for two brand new garage doors, hardly thought twice about it, and moved on with more important things in life.

    Such is the power of wealth. It can reduce stress, fix problems, and allow you to focus on more important things.

    As far as purchases I regret: I’ve got a bad habit around eating out. It’s not generally as healthy as cooking in and it’s just ludicrously expensive. But we’ve been able to eat out quite a bit and still save well over half of our income. I got a little convicted about it in April and we cut a huge amount out of our budget by eating only 1 meal out a week with just my wife and I (on a date). We also found really cheap places to do it. We saved an embarrassing amount of money just *not eating out* in April.

    I also question whether buying our beach rental property was a good idea. We lost money on it at first and now we’re about break-even / making money. But it’s time consuming to manage vs. just going with stocks and bonds. And we’re definitely only making 3-5% ROI on it even now.

    Nice site!

    • “Such is the power of wealth. It can reduce stress, fix problems, and allow you to focus on more important things.” So, so true! I just bought some life insurance. We are to the point where I’m not 100% sure we need it, but to your point exactly, money reduces stress fixes problems and allow you to focus on more important things. So while I’m sure our current wealth and income could cover everyone needs. I know that a little extra infusion of cash will smooth things over. =)

  2. “If you spend it, you don’t get to spend it again.” So simple but yet so difficult for many to grasp. I think that is because the insane use of credit cards these days doesn’t give people a chance to feel the hurt as it would paying cash or even with a debit card. I feel it most when I use gift cards – when the balance is $0 I have to throw the card away!

    There was a point in my life that I would look at billboards with cars or watches on them and I would think to myself, I can buy that… but I also realized if I bought it that is ALL I could buy. All my heard work saving all of my dollars and all I got was a lousy watch? Silly. Just knowing what it took to get that savings together made me want things less. Thank goodness I learned it early!

    • Just knowing what it took to get that savings together made me want things less. This! It’s my biggest grip against payments (I actually wrote a whole post about it!) But until we have done the hard work to save up the cash, we don’t fully realize the pain it took to save that money. So you are passing off to your future self pain that your current self wasn’t willing to go through for that item. I think even for items that we need to pay off via payment (homes- I’m looking at you!) it’s better to think of the total cost, not just if the monthly payment fits into our budget. It’s so easy for people to push their home budget up by $20,000 because it will only cost $x more a month. When they have never in their life held onto an extra $20,000!

  3. I love the way you write, Ms. Montana! “If you spend it, you don’t get to spend it again. Simple right?” What a clear and simple way to illustrate the opportunity costs we face with every decision. I also wish more folks would view being able to “afford it” as the cash on hand vs. the ability to absorb the monthly payment. You and I think a lot alike! Great post.

    • What often scares me is that they can “afford” it if NOTHING goes wrong. As long as life carries on with no bumps in the road they are OK, but job loss, sickness, accidents ect happen to everyone and most often when we aren’t expecting it. Usually the people who spend the most time trying to convince themselves they can afford something are the ones stressed out about their money situation 6-12 months later.

  4. Any time I’m told to amortize the cost, I know that the cost is too much. If I can’t absorb the cost upfront, which I’d have to pay upfront since we pay all our balances in full, then in general I have no business talking about spreading the cost across 3 years for it to make sense. I’ve learned this through *ahem* trial and error. 🙂

    I can afford a ton of things if we’re talking about shelling out the money. BUT I’d end up with way too much crap I didn’t really want or need. I’d much rather rather afford savings, retirement money, and investments so that we can afford more choices and to do All The Things!

    • I feel like savings and investing is basically buying myself future choices and options. Plus compound interest! So it’s like trading one choice today for 2 or 3 choices in the future. =)

  5. This article brings up a lot of good points. One thought is that people say they can afford to buy something and later say they cant afford to invest. That is a topic in itself.

    Beyond the ‘affording the minimum payment’ aspect which I know all too well there is an even worse side of this and that is debt. Debt is a future commitment to where your money will be spent so you are giving up present and future opportunity with your money. Any sort of payment that you are making towards debt gives you less flexibility with your current money and paying interest hurts as well. This applies more to non-mortgage debt but many easily fall for afffording the payment when they really don’t.

    I found that when I want something I eventually get it. So in response to question #3 there were plenty of times where I’d focus my resources to getting something and then once I got it I then focused on the next thing. That created a cycle of debt and lack of freedom. Once I broke out of that I have seen the power of having actual money and how it can give you freedom.

    • Hey Kevin, thanks for the comment! I think you are so right about that cycle of debt because we can go from wanting one thing to the next. I think there is the idea, that “once we get this we’ll be happy and can start saving” but something else always comes along.

  6. Great post! Cant agree more with the points you bring up. I have found it helpful to categorize things as needs and wants. If something is a need, then its ok to buy. If soemthing is a want, the purchase needs to be justified or it doesnt happen.

    • That is a helpful way to look at it! But sometimes needs and wants are a tricky thing. It’s super easy to overpay or just spend more than we have to on a need. It seems like there is a more expensive version of everything.

  7. A great point! There are always opportunity costs to spending money, and often we don’t see them until it’s far, far too late. When I think of all the times I squandered money on nonsense, I embarrassed and mad at myself. Why didn’t I realize then that I never had money for travel because I was using money to eat out instead? I just didn’t think of it in the terms you’ve so eloquently stated.

  8. I agree with you 100%. Luck is being at the right place at the right time with the mean to take advantage of the opportunity. We picked up a couple of places during the downturn and it’s working out relatively well. Could be even better if we had more cash. That’s okay, you don’t have to be right all the time, just most of the time. 🙂
    Yes, I’ve spent because I can afford it, mostly on small items.

    • The house prices are going CRAZY here right now!!! And in my head I’m going “Why didn’t we buy 1000 houses 4 years ago!!!!??” But alas. We used every penny we had to buy as much as we could. I’m really grateful for the 3 houses we were able to buy. And I’m so glad that we had saved so much of our modest salaries to allow us to do that.

  9. Love this article, Ms. M, especially your point about missing out on better opportunities (ie. cash flow properties) when you decide you can afford something else. I was guilty of that type of thinking when I was younger, and I recognize it in others all the time.

    • I’m amazed by how people miss this all the time! It was really strange when Mr. Mt was in the Army because you have almost the exact same pay as everyone else. So when people were shocked that we had saved $100,000, all I could think was, “You literally had the EXACT same set of circumstances we did!” It a funny place when everyone wears their paycheck amount on their shirt. =) I kind of wish it were like that everywhere. =)

  10. Yes!!! Complete agree with you! I throw out #1 all the time.

    I’ve definitely been guilty of feigning affordability in the past, and yes, I agree that the more people try and convince themselves they can afford something, the more they probably can’t.

    • I think people feel insecure when they know it’s cutting it close or they aren’t in amazing place to afford it. If someones net worth is 2+ million, they don’t feel any need to justify buying a new Honda Civic. It’s a non event.

  11. Yes, yes and yes again!. When people talk about spending due to fear of missing out, I feel like ‘what if you miss out on something better??’ Which they will, because usually the thing they’re afraid of missing out on is very average in the grand scheme of life.

    As the child that used to decline a comic book for £1.20 in favour of a £1 coin, I’ve been able to genuinely afford some amazing travel experiences too. And I don’t need to find anywhere to store them (although admittedly my spare hard drive is filling up quickly with pics)

    • That is such a good point! You miss out now or you are missing out later (with interest!) The trick, I suppose, it to make sure you miss out on the things that won’t matter in 10 years, so you can jump on the stuff that you will look back with fond memories in 30 years. Sometimes I ask myself, will I even remember this in 5 years. That shirt I bought, the fast food lunch, the movie night? More epic things, less run of the mill stuff. =)

  12. Sometimes stores will let you try something home and return it 30 days guaranteed, no questions asked. I alway take them up on the offer.
    For example, my wireless network lets me try out a new phone for 30 days. If I don’t like it, I can return it within 30 days and not pay a penny.

  13. Afford is indeed a strange word. Merriam Webster says it means “to be able to bear the cost of”. Too bad many people think “bearing the cost of” is by debt. Sure Visa bears the cost; personal and student loans bear the cost too. If you want to afford something you’ll find a way to rationalize how you bear the cost.

    We almost pulled the trigger on those 20 acres in MT we thought we could afford. Yes, we could afford the $40K itself for the land. But building a home, the cost of two homes, traveling back and forth and the destruction that can occur over the winter when we would not be there to catch it? We were kidding ourselves. Luckily, that night after we viewed the property we watched The Suze Orman Show at our hotel. And we came to our senses during her “Can I afford it?” segment.

    • That’s really cool that Suze helped give you perspective! Two homes is a large burden. I would probably do an RV or just rent places unless it was close by. I have a friend who owns a really small lake house 45 minutes from town, and it seems about perfect. Easy enough to go out for the weekend, but still feels far enough away that you don’t run home for a missed item. They set up a big tent in the summer to accommodate guests. =)

  14. I love how you frame spending as “selling away your options” or choices. It’s so true. And your rental properties (the ones you afforded and couldn’t afford due to travel) are great examples of how those choices work out. I also viewed our month in Europe as a trade-off of when to purchase a home. We were totally willing to wait longer in order to get some traveling in. (Obviously that could be viewed as a trade-off with lots of other things as well.)

    I actually have a pet peeve regarding when people say they can’t afford something, instead of saying they just don’t want to. I totally respect if someone actually can’t afford something. And I respect if you say you just don’t want to spend money on something. But please don’t pretend your finances are too restricted when you really just don’t want to. I suppose I can’t prove that this is the case when someone cites this reason, but sometimes it’s kind of obvious. Or perhaps it means, I spent all my options away on a new cell phone or whatever.

    • I wonder if they feel it’s more polite to say they can’t afford something. For example if I was invited to a destination wedding with a $5k price tag I might say I can’t afford it instead of, “I really love you and want you to have a wonderful day, but I really feel like we need to up our kids college savings. Their education is more important to me than being at your wedding.” I think not being able to afford something is rather socially acceptable in today’s debt ridden, no emergency fund culture. People seem to get being broke, where trying to pay off a house early is just weird. =)

    • > I actually have a pet peeve regarding when people say they can’t afford something, instead of saying they just don’t want to.

      Sometimes it’s a question of semantics. Like Ms Montana’s column said, when you buy one thing you sacrifice something else. If I have certain high priorities whether it is retirement by a certain age, kids college savings (per Montana’s example), a certain charitable giving level, etc., then all my financial decisions are made with that as a backdrop. “I can’t afford this” means, I can’t afford this without the money I spend causing a financial hit against my other (higher) priorities. E.g., suppose I have a $10k emergency fund. Some people might say that I can then “afford” to buy anything that costs less than $10k in cash. But by my measure, if a certain $20 meal would dip into my emergency fund and it’s not an emergency, then that causes a hit to my overall financial plan. If that were the case, I would feel very comfortable saying that I can’t afford it. Actually, I might use words like “that would break my budget”, which to me is also synonymous with “I can’t afford it”.

      For me, “I just don’t want to” means I’m not buying something because I don’t like the color or taste or style or whatever – it’s not a financial decision at all but I just don’t like or want something. I’m quite comfortable saying that too, when it is appropriate.

  15. This is the most important point everyone need to recall in their minds and lives. The meaning of the statement “don’t buy the things you can afford” should be understood with a practical sense rather than its meaning.
    Understanding practically leads you to differentiate between the necessity of the things you want to afford and you need to afford.

    • I think it’s also important to keep in mind that we can buy some of the things we can afford, just not everything. If we buy everything we can afford, we will always live paycheck to paycheck. Thanks for stopping by!

  16. Can I just saw bravo! You totally nailed this one. It is so easy to think that being able to afford something is all about the monthly payment. Monthly payments will keep you poor quicker than anything else. Being able to delay gratification is what makes your financially successful. Great post!

    • Thanks so much Amy! Those payments are tempting. But if people haven’t been able to save the payment amount, it will probably just be a burden going forward. It’s tough to get a head when the fixed costs eat up a big percentage of your take home pay.