QUIT BUYING STUFF YOU CAN’T AFFORD!
The only thing people will admit they can’t afford is retirement.
Right now, say it out loud, “I can’t afford it.”
You just spoke the most important words of your financial life. How do you feel? People hate saying “I can’t afford it.” I used to hate saying it. When I would say it, I would feel like a second-class citizen being denied the good things in life. I think that’s why a lot of people refuse to say it.
When I talk to people about their money, I actually try to see if I can trick them into saying “I can’t afford it,” but the only thing people will admit they can’t afford is retirement. Yet had these folks simply uttered “I can’t afford it” throughout their working years, they’d easily be able to afford retirement.
The problem is that people tend to gauge their ability to afford purchases based on a bevy of irrelevant factors. Aside from your income, consider the other elements involved in a purchase and how they affect your idea of affordability.
To start, there’s the cash price, which is the lowest conceivable price you can pay. It’s very possible you can’t afford the cash price, whether or not you break it down into payments. Sadly, not being able to afford the cash price isn’t the deterrent it used to be.
If you choose to finance a purchase, then you must consider whether you can afford the interest rate. No one can afford a 24% rate on a used car, yet a high interest rate of this ilk often is chosen over the more difficult, yet more affordable, low-dollar cash purchase.
It might feel like spreading your purchase over nine years instead of four makes it more affordable, but of course, it does not. It makes a purchase less affordable because you are paying more interest.
Every day, people buy cars, houses and educations that they can’t objectively afford. Many of the purchases are enabled — in both the positive and negative connotation — by lenders.
DON’T BELIEVE THE BANK
I spoke with a woman recently who had $30,000 in credit card debt. She was searching for a solution. She went to the first place most people might go — her bank. I don’t know how, but upon leaving the bank, her plan was to sell her home for a $6,000 profit, move in with her in-laws for two months and then buy a different home, which cost $90,000 more than her last one. When I pushed back, she offered up a commonly held logic, which has taken over American brains: If the bank says I can afford it, then I don’t see the problem.
A bank’s yes can be a terrible moment in your life. It’s not an indication you can afford a purchase. It’s only an indication of a bank’s willingness to accept your interest payments. Being denied the ability to purchase something you can’t afford is a very positive moment, despite the painful slap in the face.
If you ever hear some version of “you can’t afford it,” don’t blow past this important moment.
Don’t find a different lender, fudge your application or refuse to accept “no” for an answer. Fix your problems, not the application. You can turn a no into a yes over time.
DON’T FOLLOW THE CROWD
We’re at a place culturally where objective affordability simply doesn’t matter. We finance everything. Our governments, munici- palities, schools, places of worship and homeowners associations all make purchases absent a plan to pay for them.
If the concept of not being able to afford something is completely foreign to you, it’s because fiscal restraint doesn’t seem to exist in these 50 states.
Our cultural reality doesn’t have to be your reality. If uttering “I can’t afford it” elicits pings of disappointment, you’ve got a long way to go. It is not a defeatist phrase. It’s a beautiful phrase that will bring you financial stability, because when you embrace the phrase “I can’t afford it,” you will be able to afford to retire.