Can I Afford It?

By Brad Thomason, CPA

Once upon a time I was flipping channels and landed (briefly) on a popular financial advice TV show.  Apparently they were in the midst of a regular feature of the show in which viewers called in to ask the smiling hostess if they could afford to buy X.

As a rule, I do not listen to such TV or radio shows.  First of all, I sort of already know this stuff and am not looking for advice.  Second, I feel like the people who host such shows are at an extreme disadvantage by simple virtue of the way the format works.  Specific answers to specific problems require an understanding of nuance, and nuance doesn’t transfer well in remote conversations that have to be rushed for purposes of keeping the show moving along.  I have from time to time tried to imagine myself in that position, and the number of times I hear my fictional self starting responses with the phrase, “Well, that depends…” is comical.

What followed the viewers’ question was about 5 seconds of financial advice sprinkled with another 4 minutes of judgment and berating.  Of course you can’t afford a bass boat, you dumb slob, she seemed to say.

Apparently I have been doing it wrong all of these years, since I don’t recall ever having to be judgmental to give advice or answer a client question.  It is your money, after all; it’s not my place to tell you what you can and can’t do with it, nor heap coals upon your head if your choice differs from what I would have done.  That said, the question itself is a request for some sort of guidance; and that I can give you.

I think a good start is to view spending in 3 tiers:

1.                    1.  Current Budget needs

2.                          2.  Funding for your retirement savings

3.                           3.   Everything else

The implication is plain enough: once you’ve taken care of the necessary items, the rules for what you ought to do with the rest probably change.  And by “necessary,” do note that I’m including both 1 and 2.  If you are paying half of each month’s bills with a credit card and saving nothing for retirement, then buying that bass boat is pretty tough to defend.  In the opposite case, the opposite is true.

Part of the reason we want to have money is so that we can enjoy the things it can buy.  If you have already funded the necessary items, I’m not exactly sure how anyone else could credibly dictate what you should or shouldn’t do with any remainder. We sort of leave the land of what the calculator can decide, you know?  Admittedly, clearing tiers 1 and 2 are not always easy.  But if you have done that, and if you don’t want to subject yourself to a nationally-broadcast tongue-lashing, perhaps the foregoing will give you some insight as to what is fair game for the rest.

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