"Buy it if you can afford it"

3
"Buy it if you can afford it."
This is what many people would advise if I share with them my dilemma over buying something.

But what is the criteria for being able to "afford" something? Does it mean having the ready cash to pay for it in full, being able to pay for it by installment, or taking a loan being able to make the monthly repayments? What does "affordable" mean?

For example, if I want to take a vacation, I would ask myself whether I'm able to pay for it in cash and not. If the answer is yes, I'm still not fully convinced. I would ask myself whether the money should be saved for a rainy day, saved to be invested in the future, saved so that I can retire earlier or could be better spent on buying something which my family or I want (not need because I can't think of any items which we are in real need of). So even if I can afford it, it may not necessarily be affordable if I were to consider my long term goals.

On the other hand, if I can't pay for something in full it may not mean it is unaffordable. The best example which many of you may have experience in is buying a house. The majority of us can't (or won't) pay for a house in cash but it doesn't mean the house isn't affordable. Considering long terms goals, opportunity for capital appreciation, possible rental income, having your own space, etc it may be a worthwhile purchase.

I conclude that "Buy it if you can afford it" is a vague piece of advice. It is saying something but saying nothing at all, as though the person saying it couldn't be bothered. I don't think people say it with bad intentions but that they are unable to break down and analyse the issue.

3 comments:

Paul said...

I'll change that to "buy it if you need it". It's relevant cos if you really need something, you still have to buy it even if you can't afford it now.

David said...

Yu-Kym,

Before some purchases one has to know the difference between a need and a want. Wanting something, even when one can afford it, is not the same as a need, particularly and essential need.

One might be able to afford an expensive holiday, that is a nice to have. What happens if one is let go from work a couple months after paying for that trip on a credit card?

You made some worthwhile investments.

Looking for others to opine.

David

Yu-Kym said...

If we go by the rule "buy it if you need it" then we would only have several sets of clothes and a few pairs of shoes.

A person can only "afford" a holiday by utilizing credit isn't able to afford it at all.

I think, if people are unable to pay for something in cold hard cash, they shouldn't buy it (except with houses as an exception).