Redefining affordability

Ever wondered what it means for anyone to say they can afford something? I have learned we all have varying perceptions of affordability so I am writing this to talk about mine without trying to sway you from whatever yours may be.

In a recent chat with friends, I had mentioned that it would be nice to have a millionaire friend who can gift me a $3000 drone for Christmas. One of them had mentioned that as a (relatively) high income earner, it’s easy for me to just get that for myself. I don’t disagree with this but my money habit does.

I think of affordability in categories of GROSS and NET. My gross affordability involves things I can afford with an opportunity cost^[1]. It can be foggy to see what we forgo by making a decision to make an expense so this can be an unclear decision to make. In my case, I think of the next home or investment I want to buy, or if the expense puts me in a liability that sets me behind on my other financial goals.

Net affordability includes things I can afford with no consequences and no opportunity cost. These are usually things that I have a planned an expense for or have an existing budget on. I’m into the idea of money dials by Ramit Sethi so I believe we should find things we love and really spend on them if it earns us the happiness or comfort we desire. At the same time, I feel we should set limits on such money dials.

I think the purchase of a $3000 drone falls under gross affordability because:

• I have no long term plan for it
• My goal is to get it for pleasure so I’m not making any revenue from it to return the capital
• There is no existing budget for it

My wife and I join all our finances with full transparency so we have rules that make it work for us smoothly without it ever seeming like any one person is judging the other’s choice of spending. I understand a lot of people might not be into this, but having rules makes this pleasant and successful for us.

A part of that rule is what we call our splurge budgets. We both get equal splurge budgets every month and it’s up to us to either use it all up or let it roll over to subsequent months if we need to make bigger purchases. Technically, I could make the purchase of a $3000 drone a net affordability if I just let my splurge budget roll over till it reaches the cost of sale. Our splurge budgets are determined by our net worth at any given time so it will take us being millionaires for the number of rollovers it takes to get the drone to not be dreadfully long. This explains my perception that it takes being a millionaire to buy a $3000 drone^[2] – we’re not there yet.

Our net affordability doesn’t just tie around our budgets. We are currently planning a flight together and we plan to be on first class because we can afford it (net). This is a net affordability because we have a travel savings account that prepares us for it, we both take COVID very seriously and would rather pay a little more to get the comfort of being away from other people that may easily spread the virus to us. You may consider it our joined money dial.

There’s a chance someone who would buy that drone would not be able to afford a first class ticket. This is likely because they only factored their gross affordability in their purchase decision.

There are some things I consider unaffordable to me that you might find ridiculous. Here’s a few:

• I can’t afford to pay for more than one domain name (I only own josephrex.me)
• I can’t afford to own more than 7 pairs of shoes
• I can’t afford HBO or AppleTV because I already pay Netflix, Hulu, and Disney+^[3]

These are simply not things I am willing to put over the more important goals we have as a couple, and things I refuse to accumulate my splurge budget on.

All that said, if you are not a millionaire and will like to gift me a $3000 drone for Christmas, you are very welcome to! Ignore everything I said as these rules simply apply to my family. If you do own millions, you are welcome to gift me too and I will really appreciate it.

Merry Christmas 🎅🏾!