Smart Quiz: A Luxury Item Is Considered Affordable Only If…
- You Can Charge It
- You Can Share It
- You’ve Saved For It
- You’ve Saved 80% For It
Answer: You’ve Saved For It
A luxury is only a luxury if you can afford it without any sort of financing. Whether or not your credit card will be accepted or declined for the purchase is not an indicator of affordability. The second you whip out a credit card, your purchase becomes a debt-creator.
It’s all too easy to have all the appearances of affluence, but be financially fragile. Buying the best clothes, purses, food, and accessories looks great; but not if your reality is potentially a single disaster away from a blown budget and financial ruin.
Affordability and savings are closely connected. What is affordable is what has been saved for. The first thing you need to do before making any major purchase is determine if what you are looking for is a want or a need.
Buying a new fridge because your old one has died qualifies as a need, whether you have to finance it or not. Buying a new high-tech fridge with extra drawers and an ice maker in the door simply because you’ve always wanted to have one qualifies as a want. You should have cash on hand to pay for it, or at least be able to cover the new debt on the credit card.
Smart Budgeting Tips for “Wants” Saving Strategies:
- Put a portion of any windfall you receive into savings. It doesn’t matter if it’s a small inheritance, a surprise bonus or even your annual tax refund. Put part of that money into your rainy day fund.
- Use apps like Chime or Qapital to automatically round up purchases and deposit the difference into savings.
- Open a no-fee savings account. A lot of rainy day fund deposits are small, so a no-fee account will ensure your savings isn’t eaten up by fees. Keep your luxury savings separate from your emergency savings or regular operating account.
- Spare change is no joke. Keep a jar somewhere in your house and take it to the nearest bank or change machine when it’s full. You can easily save well over $100 at a time in a mason jar – more depending on the size of the container you use. Cash the change in and add it right to your savings account.
- Create a cash budget and take the cash out of the bank rather than paying for things with a debit or credit card. You won’t be able to overspend, you’ll be able to keep a close eye on available funds and can add any coins you get in change to your spare change jar.
- Cancel unused subscriptions and recurring charges. It’s easy to forget you’re paying small fees for services you’ve stopped using. These include gym memberships, unused website hosting accounts, Hulu and other TV services, subscription sites like Dollar Shave Club, and dozens of others. Don’t forget to check your phone for app subscriptions, too. Small changes add up.
It’s perfectly ok to want things; and it’s definitely ok to indulge in a luxury item from time to time. As long as you are paying your bills and building your emergency fund, there is no reason you can’t have a rainy day or fun fund as well.
~Here’s to Your Financial Health!
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