How do you know what you can really afford?

Apparently we in NZ are the third most indebted country in the OECD. That’s scary. No wonder we don’t get 0% financing here, or ridiculously low mortgage rates or car loan rates. I guess that’s why the default rate for a regular Visa or Mastercard is 19.95%.

It’s sort of reinforced to me how important it is to save. Single Ma had a really interesting post recently- she wanted to go to the Food and Wine festival, but decided she couldn’t afford it.

Even though she has money in the bank and a fully funded EF.

So a commenter wondered, why would she say that? She can obviously afford. Surely at least she could pull a little from her savings.

But that’s dangerous. Where do you draw the line? A concert ticket here, a road trip there, a shopping spree….keep withdrawing little amounts “just this once” and you could easily have nothing left, FAST.

An EF is for emergencies. Fun things like shopping, holidays and festivals should be budgeted for. They should have their own savings account, not be taken from your long term account. And how do you know if you can afford it? I thought about this for a little while before coming to the conclusion: If it doesn’t work into your day to day budget, you can’t afford it.

Like that commenter said, it’s the kind of thinking “but I have enough in the bank to cover it! I deserve it!” that keeps you living the paycheck to paycheck cycle.

I think that’s where BF is still at, and I hope to teach him otherwise.

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