You Can Afford It. That Doesn’t Mean You Should.
The other day, I had a conversation with a friend who excitedly mentioned a new car that he bought. Looking it up quickly online, I did the math and figured that he was going to be spending nearly $600 per month on payments.
This friend, for context, has historically lived paycheck to paycheck. Despite having a relatively decent salary, he always finds a way to spend whatever comes in. I know that this friend can technically cover the expense. But I also know that it will prevent him from ever building up meaningful savings or an emergency fund.
In my head, I was thinking, “Why do you keep making these bad financial choices?”
I kept turning the question over in my head: why are some people routinely so bad with money? Specifically, the people who earn a decent living, have no unavoidable debt (e.g., medical expenses), and still can’t manage to save a dime.
There are many reasons people develop poor money habits. One of these reasons is the lies we tell ourselves about affordability.
“I can afford it,” is one of the most commonly misused phrases in personal finance, and it’s more damaging than you may realize.
Misunderstanding whether or not you can truly “afford” something is costing you delayed retirement, chronic financial stress, and leaving you feeling perpetually on a hamster wheel.
In reality, the term ‘afford’ really does three jobs at once, and conflating them may be costing you financial security and potentially your retirement. This article will explore the term “affordability,” and will give you a better framework to use it to approach financial decisions.
The 3 Real Meanings of “Afford” (And Why It Matters)
Meaning 1: You Literally Cannot Afford It (Structural Limit)
There are certain things in life you quite literally cannot afford. That $14 million mansion you saw on Zillow? Probably structurally unaffordable. No bank is going to give you a loan you can’t repay.
This is the easiest bucket to wrap our heads around. It’s clean and clear-cut.
For the most part, this use of the word ‘afford’ isn’t what’s tripping people up. Yeah, of course you know you can’t afford the Maserati, the mansion, or the private jet (yet, anyway…).
Meaning 2: You Can Afford It — But It’s a Bad Financial Decision
Here’s where misusing the term “afford” can get dangerous. Yes, you have money in your bank account to cover the expense, but it would cost you your savings and erode your emergency fund.
Examples that fall into this bucket:
- Buying a house at the very top end of what the bank is willing to lend you.
- Buying or leasing a car that exceeds 10% of your total gross monthly income.
- Draining your savings for a large “luxury” purchase, such as a boat or RV.
This is where most people get into trouble, because if they see the money as available, they view any purchase that falls within their bank account range as “affordable.”
It’s easy to fall into the trap of saying, “I can afford it” if you’re not really clear on what your financial goals are (specifically, savings and retirement).
Meaning 3: You Can Afford It — But Choose Not To
Under this framework, you can technically afford something, but you’re choosing not to because it does not align with your budget or financial goals.
As an example, if you earn $6,000 a month, but elect to save $2,000 of that toward retirement, emergency fund, and general savings, that means you have $4,000 of that as discretionary spend.
Sure, on your $6,000 a month salary, you technically can afford to drive a car that costs $1,000 or even $1,500 a month. However, that would mean that you’d likely have to compromise your savings and retirement rate.
Heck, in many cases, you likely could make a purchase without it putting financial strain on you. But you’ve decided that it’s not a priority.
You’re making value-based choices on where, when, and how to spend your money. By saying you can’t afford something, you’re not implying that you don’t have the money, you’re stating that it’s not how you want to spend your money.
Why “Afford” Keeps Changing as You Earn More
Misunderstanding and misusing the term “afford” is a contributing factor to the phenomenon of lifestyle creep.
Lifestyle creep is when your discretionary spending increases with your pay increase. The more money you make, the more you spend. This makes sense…at first. You may think, ‘I make more money, so I want to live a better lifestyle.’
No one is suggesting that you live in the same apartment you lived in 5 years ago. Nor am I saying you need to drive a 12 year old ‘beater’ car if you can afford a newer one. I’m not suggesting you live so far under your means that you ‘feel poor.’
Rather, it is really about being intentional with spending your money. This is where understanding what affordability really means to you is critical.
Can your new paycheck cover that designer purse? Sure. But by buying the designer purse, are you neglecting your savings rate? If the answer is yes, consider whether or not you really want to afford the purchase based on your goals.
If you aren’t mindful of your habits, the more you earn, the more you will spend. You will inadvertently adapt to your new situation, and suddenly you’ll find yourself needing more and more to have the same baseline.
Why People Misunderstand What “Afford” Really Means
There are a few reasons that people regularly misunderstand and misuse the term afford.
First, is that like all words, the meaning can vary from person to person. We all have our own experiences, with different backgrounds and understanding.
If you grew up in a household where your parents were living paycheck to paycheck, you may view the word “afford,” to mean “I can cover the expense with what’s in my account.” On the other hand, if your parents were avid savers, you may look at affordability from the perspective of “should I buy it.”
A lot of our views and attitudes toward money are firmly rooted in our experiences.
Here, the concept of hedonic adaptation comes into play. At its core, hedonic adaptation means you get used to your new “normal,” and that becomes your baseline. Hedonic adaptation mixed with lifestyle creep puts you on a treadmill where something that once felt like a luxury, now feels more like a basic necessity.
It’s far easier to call something “affordable,” when you feel as if you need to have it.
Another reason people routinely misunderstand the term afford, is that we’re really bad at predicting how much something is going to cost.
Perhaps you think you can afford that kitchen remodel. But the deeper you get into the project, you find that what you planned on being a $20,000 remodel is now $50,000. Whoops. Research supports the idea that most people underestimate their spending, and it’s costing them.
How to Know If You Can Actually Afford Something
You may be thinking at this point: Okay, so how can I know if I really can afford something? I’m not suggesting that you don’t buy anything nice, or that you don’t ever spend more money on housing or your car.
The problem is, that there isn’t a clear cut answer. We each have our own hobbies, lifestyle, goals, and personal situations. A big issue I have with a lot of financial advice is that it overlooks how unique we each are, and how various circumstances can and should change how you approach money.
That said, it can be helpful to ask yourself these three questions to determine whether or not you can afford a purchase:
- Can I physically do this without going into debt or depleting savings?
- Does this fit within healthy financial ratios (housing, debt-to-income, savings rate)?
- Is this how I actually want to allocate discretionary money, given my goals?
If the answer to those three questions is “yes,” you likely can afford whatever it is you’re buying.
The Real Cost of Saying “I Can Afford It”
If your definition of the word “afford” is just another way of saying “I have money available,” you’ve already lost the game. You will continue to wonder why you never quite feel like you can get ahead, let alone save anything meaningful.
Your bank balance can tell you whether you can cover something. But, your bank account balance can’t give you an opinion on your retirement goals, emergency fund calculations, or your future self.
That’s the real tragedy of misusing the term “afford.” It puts you on a constant hamster wheel of wondering where your money has gone. It locks you into a mental model that creates the same outcomes on repeat.
If you don’t redefine what ‘afford’ means, your income will always expand to meet your spending.
