In one of our dreaming moments during the weekend, Emma and I jokingly spoke about joining a private golf country club.  It was brand new, relatively close from where we live and also extremely nice.
The financial commitment to enroll were:

1. $30,000 to join (although that can be negotiated down to possibly $20,000 we heard) and 90% of the current initiation fee can be refunded when we decide to leave the club so we can theoretically even make money on this
2. $475 monthly dues

So when we talked about whether we could afford it or not, the first reaction from the two of us were YES.  Maybe its not so much of a dream anymore because:

• We can get our initiation fee back
• $475 a month is something we could come up with

Think Harder to Stop Wasting Money

Although we could come up with the monthly payment and hence we could “afford” joining, it obviously wasn’t a very sound financial decision for us.  Here are a few reasons why:

1. We Still Need to Buy a House – We already have a sizable down payment for our house, but we should make sure we borrow as little as possible when we actually make that purchase.  It would be unwise for us to spend excessively right now and then take a larger mortgage payment.
2. Our Life is Still Ahead of Us – Not only do we have plans to get a house, there will be additional expenses in our lives once we raise children and grow our family.
3. Expect the Unexpected – 2 months ago, no one could imagine the Dow Jones Industrial Average  losing 30% in a short few weeks but unexpected events like these happen all the time.  Throwing $20,000 into an illiquid asset is not the best way to prepare for emergencies.

Thinking About Affordability is Why So Many Americans Are Poor

I have so many friends that think about nothing but whether they could come up with the monthly payment at the time of purchase. Just today, my coworker was telling me that his friend is paying $650 a month on his car lease. His friend probably didn’t do this but if he takes out his calculator and do a little math, he will realize that he is actually paying $100,000 for a car that’s worth $40,000.

The simple and common example above illustrates the danger of thinking about affordability. Think about all those stories you hear of people who’ve accumulated massive wealth because of their frugal lifestyle. These people don’t buy that new gadget or new car because they don’t see the need, not because they can’t afford it.

A Couple Other Points to Consider Other than Affordability

Despite affordability not being a good sole reason to buy something, it is still something we should consider.  On top of that, here are a couple good questions to ask ourselves when we believe we should buy.

1. Is it necessary or is it nice to have?
2. Is there a more economical version?
3. Would most people in your situation want to buy it?
4. Would you still buy it if you had time to think about it?  In other words, is it an impulse decision?
5. How is that going to affect your short and long term goals?

Mind you, I’m not saying that everything you buy have to be necessary.  If it is Emma’s birthday, I wouldn’t hesitate to get her a birthday cake even if it’s not something I will say is “necessary” for our survival.  So just use these questions to challenge yourself to think through every buying decision.

Your Turn

If all you thought about was affordability before, try to broaden your thinking because it will help you keep more of your money. For others that are already experts at this, what’s your secret? How do you determine what to buy and what not to buy?