What does it mean to afford something? How do you know what you can afford. Until examining my financial habits when I started FIRE, I didn’t give much thought to how differently the concept of ‘affording’ can be understood.
I had a conversation recently with a friend about buying a luxury item. It’s something I definitely don’t need, but I’ve wanted it for a while, and it will last me a long time. It costs around $200. My friend and I were walking past a shop and she bought herself one. Spontaneously, just like that. I looked around with her and chose one for myself, but I decided not to buy it until two pay cheque’s time. She laughed at me for waiting and told me I could definitely afford to buy it now.
To a lot of people who aren’t aiming for FIRE, she’d be right. I’ve definitely got the money in my bank account. I could have spent that $200 and it wouldn’t affect my ability to pay rent, or bills or buy groceries. In fact I probably wouldn’t even notice it was gone other than it was $200 less I was saving that month.
Although I have the means to buy it, I don’t feel like I can afford it. Buying anything that is entirely a luxury isn’t very FIRE of me, so the least I can do is plan to buy it in a month when I know I don’t have any other big expenses. Waiting 2 months (or 2 pay cheques; I’m increasingly measuring time in pay cheques) didn’t seem like much of a hardship. It’s a big purchase and it will give me time to be sure that’s definitely what I want to spend my money on.
My friend and I both work for a company that has a very clear and transparent pay scales. At work everyone knows how much everyone else is getting paid. My friend thinks its silly that I’d wait for a $200 purchase when she knows that I’m paid more than her (we are talking a couple of thousand USD a month more). It’s not always easy to explain that my reluctance to spend money on something is because I don’t feel I can afford it, especially with people in the same industry as me who have an idea of my income. I’ve been telling anyone who questions it that “I have savings goals to meet”.
Most people’s definitions of ‘affording’ seems to fall into three broad categories: I can access the money, therefore I can afford it. These are the people who will use credit cards and loans to pay for things they don’t need. I’ve put aside enough for rent, bills and groceries etc and I still have money in my bank account, therefore I can afford it. These are people who will spend money without thinking of long term savings or investments. I’ve put aside enough for rent, bills and groceries etc and saved a good percentage of my income and I still have money in my bank account, therefore I can afford it. I’m definitely in the latter category, and the percentage of my income that I’m saving would seem crazy to many people (between 60%-70%).
My friend was very happy with her purchase. So much so that she spent another $200 this month on getting a second one. I am still waiting for my pay cheque in 2 weeks to buy mine. I don’t feel envious or jealous that I can’t spend my money as easily as she can, because the truth is I don’t really feel she can afford to either. When I told her I wouldn’t spend the money yet because of my ‘savings goals’, my friend joked that I’ll become a millionaire because I wait until my next pay cheque buy things, because I ride the bus and because I shop at the market. I told her ‘that’s the plan’.