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Want to know if you can really afford something? Try saving for it.

When we are wondering if we can afford something, the simple mistake most of us make is that we think in terms of our monthly earnings.

A Korean electronics giant recently came out with its latest range of android flagship smartphones. The specs on these devices are likely to tempt many. However, the most exciting device being offered is priced at almost a lakh.

A phone worth a lakh is not exactly news anymore but it still raises eyebrows considering a smartphone is one of the most ubiquitous electronic devices to be found. There are smartphones with decent capabilities in the sub-Rs 15,000 range as well which the vast majority own.

The question that such temptations often raise is can we really afford something like that? After all, for someone earning in the Rs 1,00,000 plus per month range a smartphone worth a lakh might seem “affordable”. It’s just a month’s salary after all.

Not earnings but savings

When we are wondering if we can afford something, the simple mistake most of us make is that we think in terms of our monthly earnings. The problem is that our regular expenses have dibs on our earnings. Rent/home loan EMI, utilities, transportation, groceries and food are most likely taking a significant share of your earnings. 

Then we have our savings which we have assigned to our various investments towards different goals. What you really have at your disposal to really think about that smartphone worth a lakh is what’s left after accounting for all expenses and savings.

Remember, debt takes away options, investing gives you many.

The other options?

Many of us usually go for a loan on our credit card. We tend to justify it thinking the often zero cost EMI makes a lot of sense since it allows us to pay off an otherwise big sum over many months. Unfortunately, the truth is slightly less palatable. 

It simply allows us to look at something, otherwise unaffordable, and makes us think it is deceptively affordable. Until unless something is directly going to enhance our abilities to generate wealth, for example a practical education, or lead to long term happiness and memories then taking on debt to finance that something is not exactly the wisest choice. Remember, debt takes away options, investing gives you many.

The fact that many of us still finance a lot of unnecessary things using credit card EMIs can be blamed on simple temptation and the ease with which it can be done these days. 

The other option is to pause our existing investments and use the released savings to finance such a purchase. It isn’t the best option but it’s still better than debt. When our incomes are not that high initially, the savings might be such that we’d have to save for at least a few months before reaching the target amount. 

But who waits these days? Well, for one the people who are serious about becoming wealthy.

What’s the good thing to do?

Try saving for whatever it is that you want to buy. As simple as that. Remember, your parents used to do exactly that a few decades ago. Sure, it is boring and doesn’t appeal to our need for instant light speed gratification. For the vast majority of us, however, trying to create wealth on the back of our jobs and regular salaries, delayed gratification is unavoidable. 

As we often suggest, if you find yourself quite the shopaholic, it is easier to simply create an indulgence fund which is big enough to cater to your desires. When you can save for a purchase over a period of months, you know you want it bad enough rather than it being just an impulse. I have promised myself that, this year onwards, I will save for that big buy rather than succumb to the temptation of zero cost EMIs, even if it means waiting. What about you?

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