I figure it is pretty easy to figure out if I can afford something. Do I have cash available (my paycheck already has retirement funds etc. deducted before it shows up in my checking account)? I also have a separate saving account for medium term savings and a separate brokerage account for long term investing (and a Roth IRA). So the money in my checking account basically is how much I have to spend. If I have the money and want to spend it, I can afford it. If I don’t have the money, I can’t afford it. I can just save until I can.
There is a nice post, How to find out if you can afford something, that explores when that simple concept isn’t quite enough.
I made this mistake when I decided to start a saltwater aquarium. I found a great deal on the tank and some supplies on Craigslist, and went ahead and bought it. What I didn’t factor in was the costs of additional supplies, fish and ongoing maintenance. Turns out, saltwater aquariums are an expensive hobby. In hindsight, I wish I had done my homework a little more.
Good Advice. Related: Americans are Drowning in Debt - Too Much Stuff - Add to Your Roth IRA - Teaching Children About Money Matters
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3 Comments so far
Luckily I haven’t personally had a problem with overspending. I think a lot of people spend too much and put themselves in debt because they think their time is running out ;=)
Yes another credit card can allow you to continue to live beyond your means, but it also puts you into even worse financial shape than you have already gotten yourself into. It is not a solution…
Poor spending habits have been a problem for quite some time, the poor economy just is now focusing more people on those bad habits…