how do you know when you can afford something?

[deca]

I've always heard "if you can't pay cash, then you can't afford it." Well, what about when you CAN pay cash? The reverse is not always true, is it? Our budget has our expenses at about 75% of income, with the rest going to various savings. We're working on building up our emergency fund, and want to save towards some long-term goals.

I typically get a bonus each month of anywhere from $200-800, above and beyond the salary we include in our budget. I also occasionally have freelance income. I can't decide at what point it's "okay" to spend, say, $600 on a completely non-essential purchase such as a new television.

[autoxer]

I think the book called "All Your Worth", by Elizabeth Warren & Amelia Warren Tyagi, might help you make some of those decisions.
Booknotes: All Your Worth: Zetta's Striving to Get Rich Slow

[tinapbeana]

well, assuming all other bases are covered, i'd say you can afford to buy something when you're putting extra money into a "non-essential fun stuff fund" and the money is there in said fund to buy the item.

[autoxer]

Originally Posted by tinapbeana

well, assuming all other bases are covered, i'd say you can afford to buy something when you're putting extra money into a "non-essential fun stuff fund" and the money is there in said fund to buy the item.

But that's where it becomes fuzzy. When are my bases covered? Every decision is a compromise between one goal or another.

I've been trying to balance between saving for retirement, saving for a house downpayment & auto racing on the weekend. I have a completely unnecessary race car, but if you saw how my paycheck was split up, you would think my bases are covered. Yet I still think about selling the car, as my desire to buy a house gets stronger & stronger.

[deca]

Originally Posted by autoxer

I think the book called "All Your Worth", by Elizabeth Warren & Amelia Warren Tyagi, might help you make some of those decisions.
Booknotes: All Your Worth: Zetta's Striving to Get Rich Slow

Thanks...my library doesn't have it but I just requested it through inter-library loan.

[tinapbeana]

'having your bases covered' (for me at least) includes having unacceptable debt paid off (what is/isn't acceptable is pretty individual), an EF, saving for retirement, and saving for most forseeable expenses (i.e. Christmas, 1x per year property taxes, a car replacement or maintenance fund, etc.).

otherwise, i guess it helps if you define goals as "sprints" or "marathons" (to steal someone else's metaphor from another thread).

goals like retirement or saving for a child's education are marathons: it will take many, many moons for you to get there, and slow & steady can win the race.

other things, like an EF, saving for a car, or a house downpayment are more like sprints: you set a dollar amount and end-date goal, and sprint your way to the finish line socking away as much as you are willing to meet said goal.

with that said, how you prioritize your 'sprint' savings is very individual. for some, a house is more important. for others, a car. for me, it's a camera. higher priority short-term savings goals getting a bigger piece of the pie. when priorities change, so can the size of the slice of pie...

[anonymous_saver]

I think that's a good question.

This is how I would answer it for myself. If I have no debt (other than a mortgage with PMI gone b/c I have over 20% equity) and an adequate emergency fund and retirement savings, then if I have extra money after that, then yes, I will be ok with spending it on non-essential items like a new DVD, new pair of jeans or a new chair for the living room.

Right now, I have no debt and I'm saving over 25% of my income towards retirement (plus a pension!). I am building up my emergency fund and down payment. Once I buy a house I plan on having a 3 month emergency fund. At that point all extra money will be used to build that up to 6 months of an emergency fund. Once that is completed and I have at least 20% equity in my home then I would say I have the money to buy non-essential items. This will likely happen to me within the next 2-5 years. I am fine with waiting.

Right now I allow myself no more than $100/month in spending money for myself (such as going out to eat), but this money is also used for things like a new hairbrush if I need one, or new work clothes, sometimes I also use this money to buy cat food/litter/etc.

So I leave pretty cheaply, but I don't mind since it makes me happy/proud of myself.

[Ima saver]

Well, I buy something if I really need it. Since I don't enjoy tv very much, I would not buy a new one until the old one quit working.

[momof1in150]

I think that if you are questioning if you can afford something then you should think twice about a big purchase. There is something about the purchase that is making you question it.

Just a thought.

[Vapors]

I moniter my savings/investments year round, but track it to a spreadsheet once a year. My goal every year is for my net worth to go up by a pretty decent amount. The only debt I have is my mortgage. If my wife or I want something we generally just buy it. But I keep that purchase in mind before and after it's made so that I tend to decrease spending in other areas to make up for it.

We are getting ready to get new windows for half our house. It's going to cost around $3500. I will dip into my money market account to pay for it but will (and have been for a few months now) try to boost my money market deposits to make up for it.

If you find that the purchase will dip into your savings so much that you cannot easily make it up in the months before and after the purchase, then maybe you should think about if you really NEED that purchase.

There are other people who are more heavy savers then me so you will get lots of different opinions. But it's important to buy things from time to time that makes you happy and improves your quality of life.

[LivingAlmostLarge]

If you want it and can afford it then buy it. If it makes you feel guilty then consider why? If it's because you don't deserve to spend money then run numbers. If it's because you really can't afford it, don't buy it.

[Ima saver]

If I want to make a big purchase, I try and save up for it and not take it out of our savings account.

[LuxLiving]

This is where my subaccounts come in handy. I know we need new tires for the car, so money goes back towards it in my Car Tire Fund, when the money is in the account, then we pop off and buy them.

That's how I KNOW I can afford it, when the money for all my other subaccounts (Truck Tire Fund, Emergency Fund, Vacation Fund, Carpet Fund, etc.) has been being funded out of each month's budget and when the money is in the specific account, THEN I can spend it w/o guilt.

Of course, we never know the future and something could come up tomorrow that is unplanned and un-funded, and I might regret having bought the tires today, but we can only try to cover all the bases and then move forward. Otherwise you'd forever be in gridlock to an 'uncertain future'.

[disneysaver]

You could ask Suze Orman!

[deca]

Several comments above suggest that feeling guilty/anxious about a purchase means you shouldn't buy it. I just want to clarify that this isn't about a specific purchase, more about forming a philosophy. I feel guilty/anxious over buying, say, nail polish.

Originally Posted by LuxLiving

This is where my subaccounts come in handy. I know we need new tires for the car, so money goes back towards it in my Car Tire Fund, when the money is in the account, then we pop off and buy them.

This is more or less what I've been thinking of doing, but I don't know the best way to track it. Right now I have various savings goals in a spreadsheet in Excel. We have IRAs for me and DH, maternity leave for me sometime next year (not pregnant yet), vacation fund, christmas fund, replace my car eventually, etc. There are about 10 categories. I keep thinking up new ones and having to slice the pie thinner and thinner.

Is Excel the best way or is there something better? I don't want to have a zillion separate bank accounts.

[deca]

Originally Posted by disneysaver

You could ask Suze Orman!

Suze Orman is such a turn-off to me. I got one of her books from the library after hearing so much about her. She goes on and on for the first two pages about how people who don't manage their money well have low self-esteem. What am I supposed to with that information? Go get therapy to work on my self-esteem? I was looking for concrete information on the practices and habits that help a person to be stable financially, not psychobabble.

[Aleta]

You said that your expenses were 75%. Does that include debt as well? I agree with a poster above that reccommends ALL YOUR WORTH. There is sort of a good balance in what she reccommends. She advises 50% needs, 30% wants, and 20%savings. Although if you are in debt, that 20% goes down to 10% until you are out of debt (other than your house). If in debt, she reccommends 10% savings and 10% debt. If you're out of debt, 10-15% savings or 10% savings, 5 % short or long-term goal and 5% for same.

As for the wants area, that is where you are allocating money each month as Lux Living says for items you know that you will need. You just have to know what is on the priority list.

As far as the TV goes, my husband is also looking at them. I just can't justify paying that much for a TV unless that's all that I do all day. I would say this that I would probably purchase one of the smaller ones for a smaller space for good reasons. You might think about that. Also, know that the new TV's electricity bill is higher too.

[tinapbeana]

Originally Posted by deca

This is more or less what I've been thinking of doing, but I don't know the best way to track it. Right now I have various savings goals in a spreadsheet in Excel. We have IRAs for me and DH, maternity leave for me sometime next year (not pregnant yet), vacation fund, christmas fund, replace my car eventually, etc. There are about 10 categories. I keep thinking up new ones and having to slice the pie thinner and thinner. Is Excel the best way or is there something better? I don't want to have a zillion separate bank accounts.

i have one main online savings acocunt that holds my money, and the pie is sliced up into sub-accounts on my computer through a piece of open source software called Money Manager EX. you could easily do the same thing with excel or something similar, but since i use MMEX as my electronic check register, it just made sense to track my virtual sub-accounts there, too.

since it is a type of accounting software, it has the ability to track transfers from one account to another and the ability to schedule transactions. so, i have it set up to enter about 10 transfers on the 3rd of every month from checking to each little virtual sub-account. in the software, the accounts are named "Apple Bank: X", "Apple Bank: Y", "Apple Bank: Z" and so on. in real life, there is just one transfer on the 3rd of 817 from checking to Apple Bank.

balancing is easy, too. add up all the little virtual accounts that start with "Apple Bank:", and the total should match the balance i have in my apple bank account.

[Ima saver]

I had not really thought about having sub accounts for major purchases. I do have a sub account for taxes and insurance, one for property tax, one for christmas, one for vacations. I guess I just use my emergency fund when I have to buy something major.
We need to buy a big table saw this month. We will just charge it and I will try to save up the money to pay it back. If I can't I will take the money out of the EF.

[disneysaver]

Originally Posted by deca

Suze Orman is such a turn-off to me. I got one of her books from the library after hearing so much about her. She goes on and on for the first two pages about how people who don't manage their money well have low self-esteem. What am I supposed to with that information? Go get therapy to work on my self-esteem? I was looking for concrete information on the practices and habits that help a person to be stable financially, not psychobabble.

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.