Just because you have the money for something in your account — or the space in your budget to make the monthly payments — doesn’t necessarily mean that it’s a good idea to buy it.
Photo by Thirteen of Clubs.
The difference between “can” and “should”, aside from preventing possible dinosaur-related disasters, is key to setting up a financial plan that’s sustainable over the long run. As personal finance site Wealth Redesigned explains, your financial well being is determined largely by the habits you form. Rather than approaching a purchase or a financial decision from the perspective of whether or not you can, ask yourself if you should:
Making larger purchasing decisions with a buffer mindset can be tricky. It’s not a question of “can I afford it?” because if they wanted to, these people could probably write the check or line up the financing. It’s a question of “should I afford it?” What will taking that big vacation, upgrading to a nicer car or remodeling a bathroom do to the bigger financial picture?
By running your purchases through the filter of “should”, you can gain a better perspective on your overall finances. Sure, you could buy a new laptop with your tax refund even though your old one works OK, but you’d probably be a lot happier in the long run if you put that money towards your credit card debt.