Monday, March 22, 2010


The term "affordable' is not used with sufficient precision by most people. Hell, we're all guilty of flubbing the thing, from time to time.

For most people, a thing is "affordable" if they can pay for it; that is, if current revenues are sufficient to support the additional proposed cost. Common sense, after all, says that if you can't pay for a thing, you can't afford it.

I;d suggest, however, that while it is true the we cannot afford the things we cannot pay for, it does not follow that we CAN afford the things we CAN pay for.

To take a simple example - most families could probably make the payments for a small bass boat, a travel trailer, or some other such consumer good. Don't like sports and recreational equipment? Fine. Howzabout a nice plasma TV or a classic car?

Point is, you COULD pay for these things. True, it might limit your funds for other purposes, but still, you could make the payments.

But can you afford them? Now that's a different question. To figure out affordability, you have to factor in the opportunity cost of the thing - in buying this, you are tying up funds that could be used for other purposes, or are obligating yourself to X additional hours a month at work, or what-have-you.

So, the real question to ask is whether the opportunities - investments, savings, or time away from work - are a good trade-off for the thing you're looking to purchase. I'd suggest that it might be helpful to denominate the "cost" of the thing in terms of actual hours of work required to pay for it. In making this calculation, don't go by actual take-home pay; rather, go by funds actually left over after you've paid everything that needs to be paid to keep body and soul together and the collectors (although there shouldn't be any) away from you. You'll find your "disposable income" is a lot less than you thought it is, and that your hourly rate of "free and clear" money is far lower than a salesman would have you believe.

Sure you can still afford it?

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