Can You Afford That? Lessons in Spending

Consumer spending is great for the U.S. economy, but not so great if Americans are spending money on items they can’t afford. Simply having an available balance on your credit card or in your credit union account doesn’t mean you can afford a new purchase. If you dream of a future that includes financial stability, you must keep tabs on your spending in the present.

Reach your financial goals sooner rather than later by asking yourself these questions the next time you’re tempted to open your wallet for an unplanned purchase.

Will this purchase move me closer to or take me further away from my financial goals?

Prioritizing your financial goals brings clarity. Whether it's to create a three-month emergency fund, contribute 10 percent of your annual salary to your individual retirement account, or to save for a weekend getaway this fall, giving your money a purpose helps rein in spending.

When your money has a purpose, it’s easier to put first things first. Saying “No!” to impulse buys starts with creating and sticking to a basic budget that includes categories for your financial goals. If you’re unable to cover a $500 emergency without turning to your credit cards, then reconsider making an unbudgeted purchase.

Will I be able to pay off the purchase when my credit card comes due?

Borrowing money to pay for large purchases is expected. Most Americans don’t have enough cash to purchase a home or new car outright. In these cases, borrowing money using a mortgage or low-interest rate auto loan makes sense. However, when you borrow with a credit card and let the balance linger for months, interest charges can quickly add up.

Creating an ongoing cycle of minimum credit card payments that don’t seem to make a dent in your credit card balance will keep your dreams of a prosperous financial future out of reach. Instead, pay with cash and leave your credit card at home.

Do I really need this purchase?

It’s easy to justify your wants when you covet certain items for status, luxury, or other reasons. But, to reach your financial goals, you must keep your spending in check. Take a day or two to let the idea and excitement of owning the purchase cool off. Review your financial goals. If you’re able to adjust your budget without sacrificing your financial goals, then make the purchase. Otherwise, save up for the purchase and buy when you can pay cash.

Am I already carrying high-interest debt?

Each spending decision means saying “yes” to one thing and “no” to another.

It’s not about how much you save; it’s about how much you keep.

You may have heard both of these old sayings before. They’re still around because they ring true even in the 21^st century. When you spend money on nonessentials, less is available to pay off debt. Making matters worse, the debt load increases even though you’re not using your credit card to make the purchase. Here’s how. Since you didn’t use that money to pay off your debt and only made minimum payments towards your credit card balance, the interest on your prior purchases continues to compound making it harder to escape the debt cycle.

Is this purchase already accounted for in my budget?

Saving for purchases by adding them to your budget might sound boring. But, it actually might make the purchase more enjoyable. You not only get to enjoy shopping without the residual financial guilt of credit card balance creep, but you’ll save money by avoiding interest charges.

Save up for your purchases. Make it easy by depositing money into a savings account that earns interest.

Still unsure if you can afford that (fill in the blank)?

Spending money on items you can’t afford can cause financial stress that lingers for years after the purchase was made. Remind yourself of your financial priorities and decide if the purchase is worth it. Since unplanned purchases are usually the ones causing us to ask ourselves “Can I afford that?” – the question itself should be a reason for pause. The simplest solution might be to save and delay your purchase until you can pay for it in cash.