How Do You Know If You Can Afford Something?

Your kiddo wants to join the travel sports team, you need to hire a personal trainer for your current stage of life, your bathroom is in serious need of an upgrade, and you’d desperately love a nice vacation!

So how do you decide what you can afford? Gut impulse? A glance at your checking account balance? A thought like, “Hey, I’m making more than I’ve ever made before, I can pay for this!” Looking around and figuring that if your friends can do it, you should be able to also? Maybe just going for it and figuring it out later? Or do you have an actual system to know what you can feel great about saying yes to?

When we’re younger, most of us know we have to scrimp to make it through grad school or that first entry-level job. As we get older, though, and our incomes increase, it gets a little more blurry. We look at our peers and think our lifestyle should match theirs, or we’re working so hard we feel it’s fine to reward ourselves. Or maybe we look at our checking or savings accounts and see a surplus, so we commit to the expense. Maybe we just want the best for our kids, so we figure out how to make payments to the “perfect” school.

What often happens when we don’t have a tangible way to know what we can reasonably do, though, is a feeling of internal tension, uncertainty, and maybe even stress or guilt. Having a tangible plan gives us boundaries. Boundaries with money are based on your values—they show you what to say no to so that you can say yes to what really matters.

Planning ahead for all the irregular expenses allows you the freedom to fund the life you really want. I like what Ramit Sethi says: Spend extravagantly on the things you love, and cut costs mercilessly on the things you don't. You do this by making a plan ahead of time. It’s like guardrails on a curvy mountain road—they allow you to enjoy the journey without going off the mountain!

One quick thing you can do to make progress today is to pick one category of irregular expenses that’s important to you. Let’s say it’s a vacation. How much would it cost? When is the trip? Figure out how much per month you’d need to set aside to have that amount, then open a separate savings account and fund it with that amount each month. It gets the money out of your checking account and ensures you have it when you need it.

There are so many things you can do to get ahead and see your money clearly so it’s easy to know what to spend on and what to turn down. And it will look different for everyone because we all have different values. The most important thing is to have a plan that reflects the life you want and funds what is meaningful to you.

As a financial coach, I’d love to help you create a customized plan for your day-to-day money. My passion is to make money clear, tangible, and simple to manage—and maybe a little fun too!  Book a free Q&A call today to see if my services are the perfect fit for your needs.