Figuring Out If You Can Really Afford Something

April 25, 2024

Figuring out if you can truly afford something is an essential aspect of making wise financial decisions. Whether it’s a big-ticket item like a new car or a smaller purchase like a designer handbag, understanding your financial capabilities is crucial to avoid unnecessary debt and financial strain.

Understanding your financial situation

Before making any major purchase, it’s important to have a clear understanding of your current financial situation. This involves taking a comprehensive look at your income, expenses, and existing debts. Your Fresno financial advisor will discuss how by calculating your monthly income after taxes and subtracting your fixed expenses such as rent or mortgage payments, utilities, and insurance premiums.

Next, evaluate your existing debts, including credit card balances, student loans, and any other outstanding loans. Consider how much of your income is already allocated towards debt repayment and whether taking on additional debt is a wise decision.

Assessing your income and expenses

Once you have a clear understanding of your current financial situation, it’s time to assess your income and expenses in more detail. Take a closer look at your monthly expenses and identify areas where you can potentially cut back or make adjustments.

Simultaneously, explore opportunities to increase your income. This could involve taking on a side job, freelancing, or pursuing other sources of additional income. Increasing your earning potential can not only help you afford the item you desire but also provide a buffer for unexpected expenses or emergencies.

Determining your financial goals

Before making any purchase, it’s important to consider your long-term financial goals. Ask yourself if the item or service aligns with your overall financial objectives. For example, if your goal is to save for a down payment on a house, buying a luxury car may not be the best use of your funds.

Creating a budget

One of the most effective ways to determine if you can afford a particular purchase is by creating a budget. A budget provides a roadmap for your spending and helps you allocate your money wisely. Start by listing all your sources of income and then categorize your expenses into fixed and variable costs.

Once you have a clear breakdown of your income and expenses, compare them to see if there is any room for adjustment. Look for areas where you can potentially save money, such as by cutting back on non-essential expenses or negotiating better deals on essential services. By making small adjustments, you can free up more money to put towards your desired purchase.

Conclusion

Determining whether you can truly afford a particular purchase is a critical step in making wise financial decisions. Your financial advisor Fresno, Ca understands that by understanding your financial situation, assessing your income and expenses, considering your financial goals, and creating a budget, you can confidently evaluate whether a purchase aligns with your overall financial well-being.

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. The commentary on this website reflects the personal opinions, viewpoints, and analyses of the author, Soutas Financial, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security, or any security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Foundations deems reliable any statistical data or information obtained from or prepared by third party sources that is included in any commentary, but in no way guarantees its accuracy or completeness.