Can You Really Afford That Purchase?


A latte at Starbucks, a new car, an expensive vacation, a new pair of shoes, a new wallet, a new computer. We are exposed to so many material things in our daily lives, and advertising makes it worse because advertisements are everywhere and they serve only one purpose – to get us to buy, buy, buy. However, the cost of your purchases may be higher than you think.

Ever since the early 1900’s, the world has been on an ever-increasing path of consumerism with the accessibility to an ever higher standard of living. Generally speaking, every generation has it better than the past. Just check with your parents, and your parents’ parents. It becomes apparent that any body alive right now in developed nations, are generally experiencing a better quality of life than ever before.

I remember when I was growing up, and my grandmother seemed to live in her own world. Having gone through a world war, her perspective of life and the world was very different from mine. Even though she was addicted to her TV programmes, product advertisements didn’t affect her, and she was the most frugal person I knew. She was the sort that would never take a taxi, and always take the 2-hour journey via bus instead, with 3 transfers. Her shoes would last her a decade, and when they finally wore out completely, she wanted the exact same model back.

She is in stark contrast to common behaviours that we see in modern society.

The Illusion of Affordability

One of the things that I hear a lot of people talk about is whether they can afford something when considering to make a purchase. However, it doesn’t seem like everyone has the same definition for affordability.

My definition of affordability is whether or not something will put a dent in my financial plans. If I have to take a loan (and pay interest), or if I have an existing loan that I am servicing, then I feel that I definitely am not able to splurge on a purchase. This is especially so for huge liabilities, such as flashy cars or big houses, because of how much that sets you back with your financial plans.

Affordability isn’t just the ability to afford the monthly loan instalments, but the ability to pay cash in full for something, AND not have your current lifestyle be impacted. Any loans taken should then be thought as being a tool to give you leverage, instead of a way to afford something that you otherwise couldn’t.

The only exception that I would make is for loans that make business sense – typically loans that allow you to get an asset in return, instead of a liability. This could be for real estate (broadly speaking, of course. Not all real estate purchases make financial sense), or for a business purpose, etc.

What Does Your Purchase Give You In Return?

The great thing about lifestyles is that pretty much anything over and above the necessities like food, shelter, clothes, and so on, is quite unnecessary in the grand scheme of things. Typically, you would face a rapidly diminishing utility curve on any purchase.

Utility is an economic term that simply means the amount of happiness you get when you consume or use something. For instance, let’s imagine you can buy and eat a basic meal that costs $5. It fills you up and tastes good. This gives you a certain utility – let’s say it gives you 1 unit of utility. In this example, it means $5 on food will get you 1 unit of utility. On the other hand, you can also pay $200 on a meal. Literally everything is “upgraded” – you receive better service, better food quality, and since taste is subjective, you convince yourself that it also tastes better. Now, $200 is 40x of $5. Would you say that the utility that you receive is 40x that of the basic meal? Most of the time, it will be very difficult to say that it is. This is the diminishing utility curve that all of us will face in our everyday lives.

Knowing Your End Goal

I believe a lot of us are capable of achieving a lot of things – the key is to know what we’re working towards.

If you don’t know where you are going, any road will get you there.

Lewis Carroll

If you know that you are going to die tomorrow, then a lot of things will become affordable, and be worthwhile. However, most of us only know our date of birth, and not our date of death. That is why we have to stick to a long-term plan, and prepare our lives as if we are going to live to the average life expectancy.

Personally, my goal is to become financially independent by the age of 36. That means I no longer have to depend on my day job to pay for the bills. My accumulated savings and my investment returns are more than sufficient to cover all of my expenses. It is with this goal in mind that I structure and base my expenditure on.

An analogy would be our diet. For example, if you were planning on not being fat, then you would want to carefully consider everything that you eat. A candy bar would be 300 calories or so, and will take around 30 minutes of cardio exercise to burn off. Most of us understand that we don’t want to run an additional 30 minutes, just for that few seconds of pleasure, and so we’d just give up eating that candy bar. It becomes a worthwhile trade-off. However, if you didn’t have the end goal in mind, e.g. you are fine with being a little fatter, then you’d be fine eating that candy bar – because, hey, what does it matter?

Similarly, if you know that you want to retire by a certain age, then you’d think twice about splurging on something. That car upgrade or that new bag suddenly becomes unaffordable, because it delays you from reaching your goal. However, if you don’t have an end goal, and are happy depending on your active income for the possible future, then splurging now doesn’t seem like a compromise at all, and you’ll do it.

Do you know what you’re working towards, and what you’ll need to do in order to attain that goal?

Summary / Key Takeaways

  • What is your end goal?
  • How much does your purchase add to your happiness, or change your life for the better?
  • Cutting away the unnecessary will help us achieve our goals faster


  1. Hi my friend! I want to say that this really is what I’m feeling at this moment, and I’m just trying to find a buyer for my Nissan now. Fingers crossed!


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