How do you know when you can afford something?

Question

Especially something which is not a neccesity but a want or a luxary.

Is it when you have $$ in the bank? Is it when you have $$ in the bank that is not intended to pay bills?

I am just curious overall to see what you all think about it.

Answer 1

It depends on your situation. Assuming you are an independent adult with income and obligations... your ability to afford that luxury item should be whatever your disposable income is. However, I define disposable income as this:

Disposable Income = Net Income - interest bearing debt - noninterest bearing debt - contribution to retirement - 6 month emergency fund

Answer 2

You see how much it costs, and you evaluate your bills, what bills are coming up, what neccessary expenses are coming up, what income is coming up, and then you decide how much is left over.

For instance, if you do NOT have any savings, and your check is $600, and you owe rent of $425, you know you'll have $175 left afterwards to cover all your other expenses. Gas, grocery, bills, etc. Once that's taken care of, do you still have money left? Set it aside for that item, and keep doing that until you have enough.

If you have to dip into bill money to buy something, then you can't afford it. If you have to use credit, you can't afford it.

Answer 3

Affordability should be based on whether the purchase would allow you to continue with your normal life uninterrupted and still stay on your financial goal.

Answer 4

You said it, when you have excess money that does not need to be used for anything else including retirement. Nicely done.

Answer 5

you can afford something when you can take the money to buy it, and don't have to worry about if you are going to be broke until payday and you still have money left over.

Answer 6

when you know you can still buy food and pay the rent/morgage if you buy it.