Cash = Affordability?

[Livingalmostlarge]

If you save up cash for a purchase does it mean you can afford it? Is there a line where it doesn't matter even if you have the cash, that you can't afford it?

I mean just because you save $25k to buy a new car, does it mean you can afford it? I raised the question in my blog here.

[Megan]

Well, there are a lot of "ifs" in that statement. If I have the cash to afford a car, then I can possibly afford it if I have an emergency fund in place and if I have no credit card debt and if I have no trouble making all my bills every month and if many other things.

[amyschiff]

It's also important to consider the cash value of something relative to its perceived value. The cash value of a college education may be $60k. If we did not perceive getting an education to have a higher value than that, we probably wouldn't be as willing to get student loans to pay for it.

Conversely, I may be able to pay cash up-front for a new car. However, this might make my insurance go up a little, preventing me from saving as much money as I currently do each month. If I value my savings more than a shiny new car, I wouldn't consider the car to be affordable even though I have the cash to pay for it.

[jayfromfree411]

Is that $25K car a Prius or some other type of hybrid? I ask not just for the obvious fuel economy issues, but also because they're so in demand that they have some very high resale values.

[mbhunter]

If I saw $25k leaving my bank account I'd be darn sure I really wanted it. It's not trivial to save up that much (at least for most people).

[gt0163c]

Originally Posted by Livingalmostlarge

If you save up cash for a purchase does it mean you can afford it? Is there a line where it doesn't matter even if you have the cash, that you can't afford it?

I agree that there are a lot of questions that come with whether a person or family can afford something. The ability to pay cash for something is just one indication of whether the item is affordable. A look at the bigger picture including current savings, emergency funds, upcoming planned purchases, long term savings, near-term future economic outlook (probably changes in expenses in the near-term future as well as probably changes in earnings) and a balanced look at overall life and well being and the impact of the purchase on that are in order.

That said, most people don't go into that much detail/planning prior to making even large purchases (and I include myself in that bunch). But that's probably the way it should be done, especially for people who are working to get out of debt or are just out of debt.

[purplefdu]

There is definitely more to affording something than just cash. Example:

We paid $100 cash for our puppy. This included his neutering and a immediate vet checkup before transport to NH. Pretty good deal compared to the shelter down the street who wanted almost $300 for an equivalent animal, possibly more. Now add in the $250 first vet visit, $150 second checkup $30 every 6 months for heartworm, $100 for crate/bed/dishes, collar/leash, puppy piddle pads, dog food 3-4 cups a day, and $150 for puppy kindergarten. Easily 1k spent the first year compared to the $100 cash outlay. Fortunately its not something we didn't plan for and we can afford it pretty easily (minus the vet bills, man they are more at the new vet).

[allcash]

Yes. If you have the cash--assuming you carry no other debt--you can afford it. I wouldn't personally spend cash on a new car, but to each his own. If you work hard to save then let life pass you by because you're afraid to let the money go, you're treading into miser territory.

[Jessica08]

I think that if you have cash on hand to buy something, you can afford it. With that said, when I have cash (as in, in my pocket) I already have my reserve in my savings. Any cash that I have is meant to be spent. So if I have the cash, I can afford it.