can i afford this?

“Can I afford this?” How do you answer that question? If you’re like many people, you immediately think about your checking account, and whether what’s in it will last until your next paycheck if you purchase whatever it is you’re looking at. Alternately, you think about whether the monthly payments will push your “expenses” line over your “income” line. And that’s not bad — in fact, it’s miles better than the alternative many people followed before 2008, to whit: not asking the question at all. But as is so often the case on this little corner of the Internet, I challenge you with the idea that this is not the right question to ask.

This is no newsflash, of course. You can afford a lot of things! If your child (or your inner child!) asks you for a toy or candy, you can’t honestly say that you can’t afford it, can you? A buck or ten is hardly going to break the bank! But at the same time, you need some measure of determining whether or not spending the money fits in with your finances and your values.

Also, just looking at your checking account isn’t necessarily going to give you a clear picture. Yes, there’s some money in there, but how much of it is earmarked for groceries? Rent? Some portion of the auto insurance you’ll owe in October, or (ouch) the property taxes you’ll owe in December? If your financial situation is anything but the simplest, single-person steady-income scenario, you’re not always going to know the answer. And overdraft fees are a painful way to learn you were wrong.

Monthly payment plans — even at 0% interest! — can be even worse. If you sign up for a monthly payment that will go on for four years, only to find that your situation isn’t quite what you guessed it was or that you didn’t really want whatever it is you got, you’re stuck. And heaven forbid you actually want to make a change down the line — say, start saving for a vacation, or take a lower-paying but more-fulfilling job. Nope — you gotta pay that debt first.

No, “can I afford this?” doesn’t really work. A better question, as you’ve probably guessed, is this: “does it fit in my budget?” Suddenly, answers start becoming much clearer. If you have a budget for toys (or simply “entertainment” or “recreation”), then you can easily and simply answer the question “yes” or “no”. No guilt, no fuss, no muss; if you budgeted for it, why not buy it? You’ve already decided how much you value toys; by all means, follow through with that decision! And because each dollar in your budget has one and only one job, you know that spending money from your toy budget won’t affect your ability to pay your insurance or property taxes. A budget will also tell you how much of your spending is discretionary, which in turn will tell you if a given monthly payment will cause you to give up more flexibility than you’d care to.

The key, once again, lies in asking the right question. Picasso wasn’t just messing around when he said, “Computers are useless — they can only give you answers!” How about you? When it comes to making a purchase, what question do you ask yourself, and how do you answer it?

why budget?

Why budget? Have you ever asked yourself that question? The answer is more important than you might think.

For most people, it’s understood that you should have a budget. It’s like exercising or eating vegetables; it’s something everyone out of college feels they should do. But most people don’t, and I think it’s because they tend to fall into one of two categories. On the one hand, you’ve got the people who naturally make more than they spend; they’ve got money in their account at the end of the month, every month, so why worry about it? On the other, you’ve got the people who naturally spend more than they make; they’re going to have a balance on their credit card at the end of the month, every month…so why worry about it?

I totally get that. But it’s missing the big picture. And to understand the big picture, we need to understand something about money.

What is money? Forget Webster for a moment. Really, what is it? I like to think of it as “potential”. Potential for what, you ask? Potential for anything. Money can be converted into virtually any service, any item. It’s like a machine for converting the time you spend at your job into…well, anything at all. Each month — or every two weeks, or every time you close a sale, or every hour you work with a client — you get some of that potential. At that point, it’s entirely up to you to determine what you do with that potential, each and every dollar of it.

Do you start to see what I’m talking about?

Managing your finances isn’t some kind of pass/fail test, where the object of the game is to spend less than you make. That’s definitely very important, to be sure, but that’s not the point. The point is to manage your potential to its fullest — to put each minute of your time, each dollar of your money, to its best possible use. (And I’ll be the first to say that sometimes a Freebird’s burrito is its best possible use!)

And if that’s the point, then budgeting becomes the most obvious tool to get there. A budget tells you exactly what your priorities are, in numerical form; if you’d rather spend your money on X than on Y, then clearly X is more important, isn’t it?

In other words, budgeting means looking yourself in the eye and making a choice, rather than letting someone else — advertisers, peer pressure, and the various external forces that clamor for our time and money — choose for you. Is it harder than sticking your head in the sand and just hoping things will be okay? You bet.

But in my experience, it’s this kind of awareness that makes life worth living.