This is one of my favorite Saturday Night Live skits and something that I think we could all stand to be reminded of. If you don’t have the money for something, then you can’t afford it, so don’t buy it.
Now obviously, this isn’t a hard and fast rule. I don’t live a debt free life, but I do my best. Right now, the only debt I carry is my mortgage. If I waited to buy my house until I had the cash to pay for it outright, well, in the Washington, DC area, I would be waiting forever.
But now that I have this house, as I mentioned last week, there are a number of things I want to buy for it. Why haven’t I bought all of those things yet? Because I can’t afford them. Yes, my house would be great with new windows or new flooring, but right now, that money isn’t in my bank account, so I can’t afford to spend it.
Of course, here we have another exception. Let’s say something happens (storm, annoying neighbor children) and some of my windows break. Well, then clearly I have to get them replaced, regardless of whether or not I can afford it. And I figure out a payment plan. (Or hopefully fund it through insurance and my emergency fund… this is perhaps a bad example.)
I really encourage people to take a look at their spending and figure out if you really can afford what you’re buying. I currently carry no credit card debt. I use credit cards for just about all of my purchases, but I pay them off monthly. I have friends in their 30’s who are still whittling away at credit card debt they accrued in their 20’s. In some cases, it was situational. Poor job prospects, high living expenses, medical bills, etc. Doesn’t mean that there wasn’t some fun spending in there too, but the majority was hard to avoid and now they’re paying the price. For others though, they just overspent. Clothes, trips, concert tickets, you name it, they bought it. The thinking was “Well, I’m making some money now, but soon I’ll be making more money and be able to easily pay this off.” That is not how the world works, unfortunately.
Growing up, my parents were very careful about debt. From what I know, they didn’t carry a balance on their credit cards unless it was planned. I know that more than once, they planned a vacation, knowing that they wouldn’t pay off the entire vacation that month but would pay it off in one or two additional months. Not the ideal situation, but when it’s planned debt and you know what you’re getting into, I’m not going to say it’s a bad idea.
But you also have to know yourself. Do you have the willpower to actually pay off that debt next month? If amazing concert tickets come up for sale tomorrow and you can’t pay for them out of pocket but know you can pay them off in a month, do you buy them? If you have the willpower to save so you can pay them off next month, then sure, go ahead. As long as it’s only once in a while and you are smart about your spending, then use the tools.
But if you know you struggle with saving or you know that you have other expenses coming up so that you won’t be able to pay off those tickets next month? Sorry, you’re going to have to miss out this time. Look at what your credit card is charging you in interest. Sure, maybe those tickets are worth $300 to you today, but do you really want to deal with an additional $50 in interest (approximately what you would pay on a 15% interest rate making the minimum payment)? Something to think about.
In general, stick with the above rule. If you can’t afford it, don’t buy it. It’s not worth it.
Megan is a 30-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.