Wednesday, April 22, 2009

Can I afford this?

Single Ma has a post on whether you can really afford something.

These are some really excellent points. Peanut and other friends have expressed amazement that I can afford my own apartment at $1,100 a month on a $36,000 salary. My response is always that I'm very careful with my money, have a written budget, make sure I can afford the big stuff and cut out what's not necessary, like cable and internet. But just because I can afford it in terms of having enough dollars to pay for it each month doesn't mean I can actually afford it in terms of long-term goals and things like that. The 15 months that I've lived alone have been very well spent--I needed this time, I needed to learn how to live alone and I needed to detox from some damaging relationships. It would be very difficult to move back in with non-significant-other roommates at this point. But spending more than 50% of my income on housing is completely unsustainable, and I would probably have to continue living in the same apartment locked into two year leases for another decade before I remotely broke even. Looking at the retirement savings I've lost due to this decision, I canNOT afford my own apartment.

Similarly, my cell phone bill and considering an iPhone. Yes, technically I can pay the bill each month, and actually an iPhone would be cheaper than what I'm paying for my Palm Treo right now (by like $5-10). But is that really where I need or want to put my money? Does it help me meet my goals? Does it detract?

I'd like to apply Single Ma's three questions towards my purchases for a while--not pay money for anything without asking myself:
  • Will this purchase delay progress towards my financial goals?
  • Will this purchase result in consumer debt?
  • Will I regret this purchase in a month?
In the case of the iPhone, those answers would be Yes, No, No. (I assume on the third, I've never regretted my Palm, even though I've questioned the wisdom of it.) So how does that weigh? Ideally the answers would be No, No, No--so does two out of three make it an ok purchase?

Also, I think I need to get more clearly defined on what my goals actually ARE. They're a bit too vague right now: "Live within my means." "Have an emergency fund." "Save for retirement." What about setting actual dollar figures, or deadlines? Things like, "have $30,000 saved by age 30." "Have enough money for a downpayment in 5 years." "Pay off my student loans within twelve months." (I'm not sure any of those are definite, and some of them would definitely be incompatible.)

Hmm. I've got some thinking to do.

4 comments:

  1. I'm confused... Why would you want to answer yes to the first question? I would think that you would want to answer No to all three.

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  2. Oops, you're right! I read the first one too quickly. I've revised the post to correct. Thanks!

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  3. I love the "can I afford it" post. I'm looking for a new apt and am trying to incorporate that thinking into my decision-making process...

    btw, I've added you on my blogroll!

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  4. Thanks! Good luck finding a new apartment!

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Thanks for commenting!