Question Can you afford that?
Answer By answering these two question you will know the answer; 1. What is your take-home pay for the month? and 2. Is the expense equal to or less than the recommended category amount in your spending plan?
Complete Answer Ironically, as a kid you knew the answer. When your parents gave you $10 to buy your school lunch, you knew you only had $10 to spend on lunch and you spent it accordingly. The same principle applies as an adult. Unfortunately as adults, at times we have to buy things that we cannot pay cash for at the time of the purchase. Most of us could not pay cash for a house or a new car. For those purchases that have to be financed, the same principle applies. What is your take-home pay for the month and what is the monthly cost of the item you are buying.
For Example: Can you afford an apartment? The total expenses (rent, utilities, insurance, et cetera) should not be more than 30% of your monthly take-home pay. Can you afford a new car? Again, the monthly expenses of that new car (payment, insurance, scheduled maintenance, gas, et cetera) should not be more than 15% of your monthly take-home pay. You get to set up the categories and the amounts (percentages) for your spending plan. The important thing to remember is that your total expenses should never be more that 100% of your take-home pay.
Financial Literacy Knowledge/Skill
Know what you can afford.
Comments or Questions
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Next week’s topic: Is saving money important?