how do you know when you can afford something?

[Tree0164]

Originally Posted by disneysaver

Yeah, I think a lot of people feel that way. I think she gives pretty good advice on her show and the "can I afford it" segment is pretty funny! Her latest book Women and Money is pretty good.

I do like her Can I afford it segment on her show. I think she gives pretty good advice there.

As for the OP, it sounds like you can afford the $600 TV.

For larger purchases etc, my husband and I often sit down and talk about it. We just did our basement over-we had the $2k that it cost in cash. We are also going to Disney next month and save money each month for the last 18 months so it will be an all cash trip. Neither one is a need and even if I was extremely frugal, I wouldn't consider it. It is all about balance, if you are saving for retirement, have the emergency fund and of course don't have any oustanding credit card debt, go for it.

[zetta]

If you're willing to track all your purchases, an envelope-style budgeting system works well -- set it up to have an envelope for each of your goals. When the goal envelope has enough money, you can afford to purchase your big-ticket item.

I like the software from yNab.com. It comes in a $20 spreadsheet version and a more-expensive windows application version.

[deca]

I have a mac, not windows, so the software suggestions so far don't look like they'll work. But I downloaded a trial version of Moneydance today and so far I really like it. Every account you set up can have sub-accounts. So I created a main savings account, then created all my subaccounts and transferred funds to them from the main account. On the home screen of the software, I see just my main savings account balance, but then I can go into a detailed view to see the balances on the sub-accounts. I can also schedule recurring transfers from the main account to the subs. It's a lot like a virtual envelope system -- once one of the sub-accounts reaches the balance we need, then we can go ahead with the purchase.

[tinapbeana]

deca:

you might want to try a piece of java based software called jGnash (since it's java it'll run on a mac). you can download it from Managed Web Hosting, Dedicated Servers, Virtual Private Servers, Mail Servers, $7.95 Domain Names!. sourceforge.net it's intended more for small business accounting because it uses the double entry method, but it might work for this type of situation where you're creating virtual sub-accounts.

i don't know if you're familar with double-entry accounting, but if not: basically you have monetary accounts (i.e. checking, savings), expense 'accounts' (basically categories, like rent and utilities) and income 'accounts' (again categories like dividends and your paycheck). when you enter a transaction into the electronic register for, say, your checking account, you would mark it like this:

1. income from paycheck account deposited into main checking
2. withdrawal from main checking goes to the electric bill account

for income and expenses, it helps to think of it as "accounting where the money goes" rather than "i have a paycheck account and electric account" etc. so your expense 'accounts' are accounting where your money is spent and your income accounts are accounting where you money comes from.

however, creating the virtual sub-accounts would be really easy with this software. under monetary accounts you could have them labeled as "checking" and then separate accounts for
"savings: property taxes"
"savings: house downpayment fund"
"savings: gift fund"

and etc. you can transfer from one monetary account to the other, and the software will add up the totals in all monetary accounts for reports. basically creates a profit and loss statement for your household for the month, which is a neat way of looking at it.

[deca]

Thanks for that link, I will check it out. I am very familiar with double-entry accounting, it's part of my job.

[tinapbeana]

don't know why the link in my last post got all funky, as that's not at all what i put in the post!

here is the correct link for jGnash on sourceforge.net

[Fizgig]

I have a "Splurge Account" for big ticket wants. All of my savings are set up with automatic transfers to three accounts - EF, house taxes/insurance/repairs, and the splurge fund that I just opened at the beginning of 2007. Once I had my EF up to four months of expenses (it's at six now), I took part of the contribution and diverted it to the fun money account.

So, that's how I know if I can afford something that I don't really need - if I can pay with cash from the splurge fund. Course, now I have that savers high going and I hardly ever spend from that account. Still, it's nice to know it's there if I get a wild hair or something, and that I can indulge without compromising my goals.