Can I afford it? How much <whatever> can I afford?

[wodehouse]

We hear this all the time, "can I afford this new [insert item here]?", and it's an issue that interests me in trying to determine heuristic rules for this question (yes, I like mathematics).

One thread today discusses affordability based on the concept of leasing or renting an item that someone else might buy outright with cash. All sorts of ways one can look at this point.

But now that I am older I have thought through this question a number of times. I'm also approaching retirement in some years and likely facing a fundamental change in my cash flow. I realize that "time" is just as important a consideration in affordability as is "dollars". We all know about the "time value of money", TVM, all our financial calculators have subroutines for this. But when it comes to affordability time and money are also linked, but in the sense of a burn rate. Like "mpg" for gasoline, there's a "dollars per month" for <insert item> rate. For example, my 30 year mortgage is easily affordable now. But what about in 10 or 12 years when I am retired, will it still be easily affordable on my cash flow then? The "time" part of this question must also be considered, not just the snapshot of a single month or a single year. (Oh, this is a question that I have an answer and plans for.) Or when buying a new frig, maybe you can afford the $2500 frig, but can you afford to buy a new one of these every 6 years (some of those fancy ones don't seem to last)? Every 10 years? etc.

Also, I've realized that "affording" something is not a one-time deal. Once that item wears out you have to replace it. When you do replace it do you buy the equal product? do you move up in scale? or do you downgrade?

I like to think of all this as a uniform cash flow (that increases slightly for inflation). When I buy a car, home appliance, etc, I try to gauge how much money I am paying for how long a time. For example, I may pay cash for my next car, but my budgeting includes a regular dollar amount each year for the cost of the car; either that will cover a car loan payment (if I went that route) or lease, or covers saving up to for the next new car. Thus my cost, in the $/month or $/year, etc, is always there right in front of me; confronting me so that I won't overspend. In the past I rather ignored the fact that there would be another such major expenditure sometime down the road. But now even if I plan to pay cash for a purchase I set aside a small amount each month in my budgeting for those large capital costs and irregular expenses.

[Tiny]

Sometimes affording something is a one-time deal - a vacation, tickets to an event, a life milestone (like a kid's graduation).

I generally consider "the trade offs" short term and long term when deciding if I can afford something - the trade offs being not only involving money but 'experiences' as well. Also which 'road' moves me towards a goal or is in line with my 'values'. And I'm not talking 'moral/ethical values' It really helps that I'm pretty sure of what I 'value' and why and that I have plans/goals and think about the future (my future) quite a bit. Makes choosing/deciding what to spend money on (or what NOT to spend money) pretty gosh darn easy and I get the most 'bang for the buck'.

[wodehouse]

yes, kids, take it from an oldster like me. Get your experiences when you're young. Thumbs up for ATSiaRU

[azphx1972]

Good points, both of you. One has to consider maintenance/replacement costs when purchasing something, and there has to be a balance between enjoyment and opportunity costs. The trick is to figure out the right amount for yourself.