Broker Check

How Much Can I Afford?

How Much Can I Afford?

| November 01, 2021

How much house can I afford? How much car can I afford? How much horse trailer can I afford? Can I afford a second home? Can I afford a recreational vehicle?

I think most of us ask ourselves this at one time or another in our lives, or at least we should. Honestly though, I fear that the majority of us don’t really have an answer before we pull the trigger on a major purchase. Wouldn’t it be wonderful if Siri or Alexa could simply answer this question for us? The truth is that the answer is seldom easy or simple.

Companies do an outstanding job in marketing affordability. How many times do you see a car commercial with a monthly payment advertised? They are betting on you to justify being able to fit it into your monthly budget. But just because you can afford the monthly payment doesn’t mean you can afford the car, or the house, or the….

Even if your home is paid off, it can be too much house for your situation. Two times we have witnessed people drain almost all of their retirement assets just to keep a house…that was paid off. There are so many continuing expenses that come with owning any one of these major purchases, and they have to be considered in your monthly budget. Moreover, there is the matter of your priorities.

We have a sort of reputation in our small town—we are a family that tends to drive around in old Toyotas. I was having a conversation with a very successful gentleman one day and the topic turned to vehicles and when to trade them. I was fighting against needing to trade mine. He stated, “You know you can afford it. It is a choice.”

He was absolutely right. I could afford to trade, but at what cost? Where would it dip into my budget—taking care of my family, my retirement savings, savings to spend, vacation dollars, giving? After some thought, I didn’t trade.

I once heard you should spend your money on two things in life—other people and experiences. Giving is the gift that gives and experiences will always be with you. Things go away and newness always wears off. I try to keep this top of mind every time I pull out the credit card.

There are a multitude of online calculators that will tell you how much car or home you can afford and they are great resources. One of my favorite websites is However, and this is a big however, you can’t take their answers to the bank.

So here is a little secret to get closer to your answer: Treat your priorities as obligations in any online calculation. And ask yourself these questions first to learn just what these priorities are:

  1. What is my monthly obligation to take care of my family? What is the cost of all of my insurances—health, life, disability, home, automobile, liability, etc.? Will I need more of any of these after this purchase? A bigger house may mean more life insurance and certainly a larger homeowner’s policy.
  2. What is my monthly obligation to take care of the old people we will be some day? How much do I need to be investing for my future? Will this need to be more due to a higher standard of living with this major purchase? A bigger house may mean bigger bills, HOA fees, taxes, etc.
  3. What is my monthly obligation to update my emergency savings? If you have a larger monthly need, you will need a larger emergency savings.
  4. What are my savings to spend needs? Can my new budget allow for it?
  5. What is my monthly obligation to the other priorities in my life—my family time and vacations, giving, hobbies? Can my new budget support these?

Emotions tend to get the best of us when we want that new shiny object. After all, we are Americans and we have the endless pressure to keep up with the Joneses. There is nothing wrong with being successful and enjoying the fruits of your labor, but remember to keep it in check. What really are the most important things in your life today and looking into the future? Will this decision support that? If not, you might want to think about your thinking and go a different route.