How to Determine if You Can Afford It

Sometimes you want things. Sometimes you just need things, like when a necessary appliance breaks down or the much-depended-upon computer crashes. Sometimes you want something special, for which you don’t have ready cash, or you want to take advantage of a sale to buy what you can’t quite pay for in cash but could never dream of paying for at all if it were not on sale. How do you determine if you can afford it?

Consider Your Budget

Assess how much money comes in and how much money you spend. List your income from all sources. Then, list the expenses that are the same each month. Next, list the expenses that vary, such as clothing and entertainment.

Consider how much income you receive each month and determine if there is any expense item that you can lower or minimize in any way. For the fixed expenses, review these carefully and investigate if you can reduce them by changing where and how you live. For the varied expenses, see if you can delete any of these altogether, such as outside services that you can do yourself instead.

Review your budget to figure out if you can expect extraordinary income, such as a bonus, a raise, an income tax refund, etc.

If you have too much debt already, such as high credit card debt, on which you can make only minimum payments each month because the percentage of your debt relative to your income is too high, resist the temptation to purchase something else on credit. It may not be worth it in the end.

Base libraries have information about budgeting and money management techniques. Many military bases also operate nonprofit financial counseling programs to help you.

Consider Getting a Loan

There are two common ways of paying for things when you don’t have the cash: credit cards and loans. It is important to remember that a credit card is actually a loan, and as such, interest is assessed on any money in the loan you don’t pay back within your grace period (usually 30 days). After thirty days, you will have to pay interest on the balance of the loan you haven’t paid off. The amount of interest is calculated on the Average Daily Balance in the account.

If you can pay off the balance on your credit card, that’s fine. However, since cards allow people to live beyond their means by making available additional credit, more people than not “rack up” balances on their credit cards. In fact, only about 40% of card holders pay their bills in full every month. And, because minimum payments are relatively small, it is too easy to lose track of how much that is actually costing you.

You might also consider a traditional loan. There are loan companies that specialize in understanding the needs and situations of military personnel. Some have been around for over half a century. Military bases have credit unions that grant loans, too.

A traditional loan has a distinct advantage over a credit card for many reasons. First, it helps make you focus on exactly what you need the money for and how much money you need. Second, there is a finite period of time in which to pay off the loan, so you don’t keep putting off paying the balance forever. Third, a traditional short-term loan doesn’t grant you a pool of available credit in which you can later drown.

If you decide to get a small, short-term loan, it is important that you do your research. Shop carefully. Compare offers. When obtaining loans from small loan companies it is often wise to focus on the longstanding reputation of the company in the community, length of time the company has been in business, the speed of service, and whether or not you can afford the monthly payment. Be certain that the loan source gives you a copy of the federal Truth in Lending disclosures, designed to makes it easy for you to understand the terms and cost of these loans.

Source: Omni Financial®