Can You Afford Your Lifestyle?
Cheap credit lulled us to believe credit is limitless! Today, funds are not easily accessible as before, but, for many consumer goods, inexpensive financing exists. Seductive advertising's allure with low-priced funds continue to entice consumers to buy stuff they don’t need, while they try unsuccessfully to manage money: refinance, consolidate, declare bankruptcy. These are wrong metrics: we can't manage money!
Money management is a misnomer. Lifestyle choices drive spending: where we live, the cars we buy, the clothes we wear. To avoid sinking deeper into debt, consumers must question lifestyle choices. Some might have to step back a tad--especially with Government debt climbing at all time highs, unemployment almost twice pre-financial crisis levels, and businesses recovering, but not employing.
According to May 14 International Monetary Fund’s Fiscal Monitor, “even as the global economy improves, fiscal balances in advanced countries, are worsening.” Happily, though at record levels in Canada and the United States, household debt is falling. Have we reached our debt limit? Given current economic uncertainties, I think we have.
Affordability remains unimportant in the spending decision: we must resurrect it! What does affordable mean? More than the popular view of ability to meet a few monthly payments. It's looking at the proposed commitment, and being reasonably confident of meeting all commitments (consumer goods) from today’s projected cash flow with no extra debt. If you expect additional funds, exclude them from the spending decision. Most of all, understand your decision could compromise short and medium term goals, such as returning to college.
Can you afford your current lifestyle? To upgrade--buy that new electronic toy, appliance, furniture--will you use cash, or a credit card and pay the full balance? If not, wait; you can’t afford to spend today! The Affordability Index might be a helpful guide.