Afford - A Dangerous Word

Afford – A Dangerous Word

afford

“If you can’t afford to pay cash, then you can’t afford it.”

 

One of my great friends and financial mentors says this to me at least once every time we talk about money. In the version of America that I grew up in, you don’t hear this statement very often at all.

Actually, I had never even thought of using the word “afford” in the same sentence as “pay cash”.
I’m also willing to guess that most Millennials haven’t either, but why not? It seems like a really simple concept. Once you acquire enough numbers to buy something, you subtract another number from it and then get an item or service. (I try to talk about money as just numbers so that I can get rid of any emotional attachment that I might have to it.

It’s weird and it makes me weird, I know…but it works for me.)

My friend and I are on the total opposite spectrum. He is older than me, wiser, more financially experienced, etc. He also created a very successful business and is just as good at investing his money as he was at becoming an entrepreneur. He LIVES by the statement above, because he can afford to.

What can Millennials afford?

Where does that leave me? I’m not too far removed from college and just finished paying off my student loan debt less than a year ago. I can pay cash for some things, and the amount of things that I could buy goes up every month because I continue to follow my own money rules and save more.

However, there are still plenty of things that I can’t buy. But let’s forget about me for a second, where does that leave my generation? Everywhere you turn, someone or some company is telling you that you can afford whatever they are providing. You can pick up a credit card and instantly afford whatever your credit limit is. Millennials are pretty financially vulnerable because our financial educations range anywhere from horrific to nonexistent.

The word “afford” has really put people my age into financial trouble early. It’s a pretty innocent word, but can handcuff you in debt as fast as you can sign your name to a piece of paper or swipe a card. I’m terrified of the word, and I think you should be too. Anytime you are told that you can “afford” something, you are being lied to.

Sorry for the cynicism, but it’s true. 

There are some things that you will most likely need to finance as you navigate through the money minefield that is life in America. For me, I know I will have to bite the bullet and finance a house. I plan on flipping whatever house my fiancé and I live in so that I can come out ahead on the deal.

I use a credit card, but I pay the full balance every month (I let a balance stay on the card until it is reported to the credit agencies so I can show a low credit utilization rate, but that’s for a different article.) The next car I buy will be used and I’ll pay cash for it. At this point I can’t quite live exactly like my friend’s definition of “afford”, but I can try to get as close as possible.

For a lot of Millennials, the above quote can be used more like this one:

“Shoot for the moon, because even if you miss, you’ll land in the stars.” – Les Brown

 

Maybe you can’t pay cash for everything, but it wouldn’t hurt to have a strong definition for what you think being able to afford something really means for you. Knowing what you can realistically afford can keep you on track for your financial goals, and may become your secret weapon for being debt free. At the very least, it might make you think twice before you finance!

What do you think afford should mean for Millennials? I’d love to hear your opinion, feel free to comment below. 

Live differently. Your bank accounts will thank me later. ~M$M

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33 comments… add one
  • Deacon Jan 27, 2015, 10:16 pm

    I am a big fan of associating the amount of cash that you HAVE with what you can afford. I think that your initial quote hits the head. If you dont have the cash, you cant afford it.

    • Millennial Money Man Jan 28, 2015, 2:37 am

      I completely agree. I really think it’s a scary concept for for the average American to wait and save for the things that you want. It is unbelievably easy to finance items and take on debt now. The down payment requirements keep getting smaller, and the loan terms continue to get longer.

  • MoneyBaconGuy Jan 28, 2015, 2:27 am

    I like the comment about credit utilization when you mention buying a home. Good hook, I’m in about the same place. I may be financing a home this year.

    • Millennial Money Man Jan 28, 2015, 2:36 am

      Thanks! Good luck on the home. Part of me wants to try to buy a cheap house with cash, but there may be better investments that I can make with that money. Congrats on using the Dave Ramsey plan btw, it really helped me pay off my student loans.

  • Holly@ClubThrifty Jan 28, 2015, 1:32 pm

    Oh man, when people tell you that you can afford something, that typically means you can afford it if you’re willing to make low monthly payments for life! Been there!

    I can afford what I can pay for in cash. Period. The only exception is my house and I could pay for that in cash if I sold other investments.

    • Millennial Money Man Jan 29, 2015, 1:44 am

      Yes! You can even finance your cell phone now too – how crazy is that? It’s out of control and getting a lot of people into a financial mess right out of college. Thanks for reading!!

  • Scott@ilovecompoundinterest Feb 2, 2015, 5:52 pm

    Good content Bobby, and congrats on getting control of your finances and out of debt. I would also add that the words NEED and WANT are often misunderstood in addition to the word AFFORD. You and other Millennials need not beat yourself up though because other Gen X folks and Baby Boomers have a hard time with these concepts as well. Somehow WANT turns into NEED and then AFFORD comes into the discussion we tell ourselves, but the word SAVE is sadly overlooked by most. Keep fighting the good financial fight.

    • Millennial Money Man Feb 2, 2015, 6:30 pm

      Thanks Scott! I agree 100% on everything that you mentioned. Hopefully I can convince some young people to do what I am doing.

  • Aileen Ghee Feb 4, 2015, 7:00 pm

    “Afford” is a term that every parent should define for their children early on. Great advice we will share with our folllowers on Facebook http://on.fb.me/1F6ATic

    • Millennial Money Man Feb 5, 2015, 12:54 am

      Thanks for reading and sharing! Always appreciated!!

  • Harmony @ creatingmykaleidoscope.com Feb 13, 2015, 5:33 am

    That horrible word is one of the reasons why we have so much debt right now. As you correctly noted, there are many of us millennials with horrific financial educations. My husband and I used to say that we could “afford” something if there was available credit on one of our cards. Fortunately, we’ve learned our lesson. Now we’re working hard to find new ways to save money and earn more money, so we can pay off our debt and move towards financial independence.

    • Millennial Money Man Feb 13, 2015, 9:18 am

      I’m so glad that you agree! Congrats on starting on the road to debt free, I hope you spread the word to other young people. Good luck, I’m rooting for you!

  • Christina @ Embracing Simple Mar 4, 2015, 12:00 am

    Definitely a horrible word! I’m 25 and can’t even tell you how many friends my Husband and I have who have literally THOUSANDS of dollars in credit card debt. Not even for something like a trip to the ER or something else unavoidable, but for silly things like clothing, home decor, eating out, drinks (this is a big one). I just don’t get it!

    I’ll be upfront in saying that we do finance our cars and home (just paid off student loans as well), but always pay for our credit cards in full each month. I guess I just don’t understand how my peers can spend so frivolously without thinking about the fact that they’ll eventually have to pay for the items they put on credit…..with interest, of course!

  • Millennial Money Man Mar 4, 2015, 12:29 am

    Congrats for paying off your loans!! Feels great doesn’t it? 🙂 I’m a firm believer that better education would REALLY help your peers avoid debt. A lot of people don’t really think about the big picture when they make financed purchases.

  • Janeen Mar 19, 2015, 11:22 am

    When faced with someone who says “I can afford X”, but is paying for it via a card or loan, I tend to oscillate between disgust and sympathy. Debt is so engrained in our culture that I truly think many people don’t realize that they’re not actually paying for an object, just putting a larger bill on their card. That’s why the anti-debt movement is making such a headway, it’s as simple as people realizing what’s actually going on. They’re not unintelligent, just uninformed.

    • Millennial Money Man Mar 19, 2015, 1:20 pm

      Haha! I tend to feel sorry for them too. Honestly, I would probably be the same if I hadn’t met the right people at the right time. It seems like it wouldn’t be too hard to teach people about money, but what do I know? I’m just a teacher. 😉

  • Master Nerd Apr 16, 2015, 7:49 pm

    Wise time tested advice! The real problem is it’s just too easy to get credit and finance pretty much anything. America and Canada (where I’m located) are particularly bad compared to the rest of the world, but it never used to be like that. My dad and grandparents are from eastern Europe and the concept of a credit card, let alone borrowing money for day-to-day things was not even an option until more recently. I use a credit card purely because I collect points/miles and pay it off every month (if not sooner). I’m in a fortunate situation where my student loans are small and I have enough money to pay them off, but as long as I’m still a student they are interest free, so I’m using the money for investments.

    • Millennial Money Man Apr 16, 2015, 8:00 pm

      That’s pretty interesting about the rest of the world and financing – I haven’t thought about other countries and their spending habits much. I use a credit card for the points and to maintain my credit score. Glad you are managing your student loans well (most people don’t even think about them it seems).

  • The Wulf Nov 29, 2015, 2:44 am

    I strongly believe in financing. However, I don’t believe in financing anything that one cannot pay cash for, or does not have available the cash equivalent in liquid assets. If you had the cash available for a vehicle, it implies affordability; but anyone who then pays cash thinking they’ve beat the bank is a fool, who could easily have invested that money instead and seen returns exceeding the interest rates. Financing should only be used for financial gain, not material gain, whether directly or indirectly.

    • Millennial Money Man Nov 29, 2015, 3:15 pm

      I agree – the only borrowing I plan on doing in the near future will MAKE money for me.

  • Dee @ Color Me Frugal Jan 21, 2016, 7:47 am

    It is scary easy to get into debt in this country. I really do think that marketers and debt peddlers have done a fabulous job of convincing most people that debt is normal. It’s only once you start to ditch that mindset that you can really open your eyes to the idea of financial freedom- and the awesome idea that you should be able to just pay cash for the things you want. Great post!

    • Millennial Money Man Jan 21, 2016, 11:29 am

      Thanks! Yeah I agree – way too easy to borrow money. The only real way to combat it is to get educated on personal finance!!! Thanks for reading 🙂

  • Michael @ NTPNW Jan 21, 2016, 12:34 pm

    Ah the afford word. It was one that was very much a part of my life when I was living in debt. Back then it meant we could somehow make the payments. After becoming debt free it has taking on a new meaning for my family. Now it means we can pay for it in cash. A completely new way of looking at things which has made my life so much less stressful.
    Great article.

    • Millennial Money Man Jan 21, 2016, 1:35 pm

      Glad you liked it! Crazy how a simple shift in the definition for a word can completely change your financial future.

  • Kurt Jan 21, 2016, 12:48 pm

    You’re so right about ‘afford.’ One of the most financially destructive places I see ‘afford’ being abuses is in the marketing of big purchases that people often finance. The car salesperson / realtor always asks ‘how large a monthly payment can you afford?’, as if that’s the way to judge how much you should spend on a car or house. “Sure you can afford that $40,000 car. We offer a 96-month loan that will make the monthly payment affordable!” Never mind the extra $5k in interest you’ll pay.

    Keep fighting the good fight! 🙂

    • Millennial Money Man Jan 21, 2016, 1:36 pm

      I will! Car dealerships are probably the biggest culprits of this (I hate new cars). Besides the extra interest, they are also convincing people to borrow money for a depreciating asset!!!!! *sigh*

  • E Jan 21, 2016, 1:59 pm

    (I let a balance stay on the card until it is reported to the credit agencies so I can show a low credit utilization rate, but that’s for a different article.)

    Wait what, explain. (Low-key freaking out here because I pay all my balances asap–I never let them sit).

    • Millennial Money Man Jan 21, 2016, 2:42 pm

      Sure – You can either pay your balance before it is reported to credit agencies or right after if you are trying to avoid paying interest. For example, if my billing period ends on the 15th of the month, I will pay off the balance on the 16th.

      Here is an example:
      Say my credit limit is $10,000, and I spend $400 for January. I check the billing period and see that the period ends on the 15th. Rather than paying the $400 in full on the 14th or before, I wait until the 16th to make the full payment. On the 15th, the credit card company reports to the 3 credit bureaus that I used $400 of my $10,000 credit limit, which is an 4% utilization rate and considered very favorable. If I had paid it off before the end of the billing period, the credit card company would report that I used $0 of my $10,000 for a 0% credit utilization rate, which is not ideal to credit bureaus. They want to see that I know how to use credit, not that I don’t use it at all.

      By gaming the system like this, you can show that you can handle credit but still won’t incur interest charges. Every time I have done this I see a bump in my credit score because the 4% credit utilization rate is considered very good by the bureaus!

      I did an article on building and managing credit here: http://millennialmoneyman.com/how-to-fix-your-credit-score-quickly/

      If you like to pay off your card early (awesome) and don’t need a credit bump, just keep doing what you are doing!

  • Guest Jan 22, 2016, 8:10 pm

    It seems there is a more complicated answer that works better
    you can afford something if after you pay all your
    fixed bills, fluctuating bills , hit your retirement savings goals and your immediate saving goals , there is money left.

    Even if you have cash in your hand, if you haven’t hit ALL of those goals you can’t afford it.

    If you have enough saved up credit is a nice tool. If you only have $200 cash and there is a good deal on a thousand dollar something you want, credit is fine to get it as long as you then rebudget(you have a new fixed cost) that in AND you could pay it off immediately if you needed to.

  • Charity Jan 25, 2016, 3:49 am

    This post needs a meme from The Princess Bride – “You keep using that word. I do not think it means what you think it means.” I wish more people thought of affording something as being able to pay for it, in full, and not just being able to make the minimum monthly payment.

    • Millennial Money Man Jan 25, 2016, 10:19 am

      Haha I actually just saw that meme the other day – I like using it for the word “free”!

  • Jaymee Feb 16, 2016, 3:58 am

    Oh man, I agree when you say “afford” is a dangerous word for us millennials. I have been house hunting for my first house and have been quoted by several mortgage brokers what I can “afford” in terms of housing. Their calculations is stretching out my budget but I know that what I want to be able to “afford” is my mortgage + retirement savings/investments + my ideal lifestyle. I know of several friends who fell for what their mortgage brokers or banks told them they can “afford” and now realize later on that that’s the ONLY thing they can afford… so sad 🙁

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