How Do You Answer the Question, “Can We Afford It?”

“Can we afford it?” This may be a simple question for you to answer, but it’s one that’s plagued me ever since I got married 22 years ago. This is an especially tricky question when you are in business for yourself because sometimes you have uneven cash flow and greater access to money.

The real difficulty answering this question came to light when my daughter and I bought tickets to see the Dodgers, who will beat the Marlins this coming Saturday. We aren’t big baseball fans. We don’t really care who wins. But we have fun when we go out to a game. Usually, that’s only once a year at most.

This ticket purchase expedition confirmed that either my memory is fading or ticket prices have skyrocketed.  I was shocked at how high the prices were for decent seats.

In any event, when my daughter and I were looking for seats and she saw how high the prices were, she asked me if we could afford it.

I must tell you that I was very happy that she even thought of asking this question. I was relieved knowing that I had raised, in effect, a “frugal Frankle”!  A “Mini-Me,” if you will…

But I digress.

Truth be told, when my little darlin’ asked me this question, I really didn’t know how to answer her. In essence, she was asking me what to do with savings.  In other words, if you have the money, does that mean you can spend it?

I explained that we had enough money to buy tickets to the game even though they were expensive – $65 each.  I explained that we had money to send her to college and we had money for my wife and youngest daughter to visit family overseas. But I went on to say that just because we had the money to do it, that didn’t mean we could afford it.

It was at this point that my daughter started rolling her eyes – wishing she were back home watching reruns of “Law and Order.” Right or wrong, I saw this as a teachable moment, so I forged ahead.

I told her the amount of money we need to save in order for my wife and I to retire someday.  I told her how far along the path we are and what we need to save each year in order to reach those goals. I explained why it was important to make the best investments possible after we saved.  But given the recent drop in the market and how that’s impacted everyone’s income and savings, my wife and I will both be working for quite a few years to come.

So when she asked if we could afford the tickets, the answer seemed complicated to me. We had the cash to buy the tickets – we wouldn’t need to get out of credit card debt just because we bought them.

But could we afford to spend $130 (plus parking and refreshments) for one night on entertainment?  Is it the best use of that money? Wouldn’t it be better to use that money toward our bigger goals?

It’s a tough question to answer.  I’ve always focused on security – for my family and my clients.  I refuse to ignore the future and just “live for today” financially.  But I am trying hard not to be a slave to the future at the expense of not being present and failing to enjoy life right now.

At that point, I think my daughter wanted to change the subject.  She told me she needed to go shopping for clothes.  I ignored the hint, tagged along and continued our discussion.

I asked her how she decides if she can afford something or not. She told me how simple that question was to answer.

If she had the money in her pocket, she could afford it. If not, she couldn’t.

I was starting to squirm a little at that point, but fortunately she redeemed herself by continuing.  She told me that if she has $30, she has to decide which is more important: two lunches out with friends or a nice outfit.  (A born economist. Milton Freedman would be proud.)

I explained that her process was appropriate for her but not for me or her mother.  We have to think about the best use of the money and hope we make the right decision. And that is the rub.  That is the juncture where the emotions fly.  The guilt.  The fear.  The shame.

When someone asks me if we can afford something, they might think the question is, “Do we have money?”  The answer could be yes.  But I might be thinking the real question is. “Do we have a budget for this?”  Unless we agree on our terms, we’re in trouble.  That’s why we use You Need A Budget to track our spending and (more importantly) to set up budgets.  

By setting money aside before the question comes up, we have, in effect, answered the question, “Can we afford it?”  

Clearly, you don’t have to use the software we use – any tracking procedure will work so long as it’s complete.  But once you start setting up budgets beforehand, you’ll never have to ask yourself the question ever again.

If I say, “No, we can’t afford this because we don’t have the money for it,” and my family sees that we do have the money, Dad comes out looking like a tightwad.  Then Dad defends himself, emotions start flying and it’s downhill from there.

The solution is to explain the difference between having the cash to do something and having the budget to do it. I never would have even thought about this subtle difference unless my daughter explained what she meant by being able to afford something.

I guess I should go shopping with her more often.