I know we’ve all uttered the words “I can’t afford that.” You are presented an item, or an experience, and immediately it feels outside of the realm of possibility. Or maybe you feel like you can’t possibly save as much money as you’d like. But what if it was possible? What if it was up to you what you could afford or not afford? In this article I’m going to show you how you can reframe your thinking to take control of your finances by prioritizing your spending, and figuring out how you can expand your income. Start finding the answer to “How can I Afford” whatever you want.
Prioritizing What is Important to You
Think for a moment about what’s important to you. Is it time with friends and family? Fitness? New experiences like concerts or food? Your image? Your future financial security? Whatever it is, it’s individual to you and it’s important to figure it out. For me, I put a lot of value on freedom, being able to do what I want to do, and future financial security – being able to handle any future financial needs comfortably.
Recognizing what is important to you is important to be able to take back control of your finances, and start directing them to where provides the most value to you. This will start to answer the question of “how can I afford…?” It’s also important to remember that what’s important to you will be different from what’s important to others (see my article Overcoming Money Envy – How to Stop Comparing Yourself).
Baseline Where You Are At Now (Budget)
To be able to take control of your finances and make explicit decisions on what you can afford, it’s really important to take a baseline of your financial picture. Take a few minutes, and evaluate:
- How much do I bring in on a monthly basis? If you’re salaried, take your average. If your income is variable use your worst month of the last 6 as your baseline)
- How much do I spend on survival needs? Food, housing, clothing, etc.
- How much do I save/invest?
- How much do I spend on activities (e.g. eating out, events, etc.) and items (e.g. accessories, non-necessary clothing, etc.)?
- Classify this list into needs and wants, and be honest with yourself. Maybe you did need a new pair of shoes, but you didn’t need a designer brand.
Feel free to add any other categories here, but make sure you’re continuing to classify non-survival items into needs and wants. Continue this exercise until every purchase has been accounted for. Having a baseline understanding of where you are allocating your money on a monthly basis is crucial for the next step.
Reallocate Finances to Answer “How Can I Afford…”
At any given time, we are allocating all of our money to what we deem most important. Read that again. Already, whether consciously or not, you have allocated all of your money to either spending or saving. Now the key piece here is whether this was a conscious decision or not. If you do not have visibility into where your money is going, you won’t be able to control the flow. What’s important here is taking back control of where the money is going, and taking the previous step of creating a baseline will be key for this.
Now that you know how much money is coming in and where it’s going, you can start to direct that flow. Think to what you want in your life but previously seemed out of reach. For example, let’s imagine that you were consistenly struggling to reach your saving’s goal, and are always $500 short. Where in the previous month of spending can you find $500? Maybe you decided to go to a concert, and eat out a couple times. Now is that more valuable to you than saving $500? That part is totally up to you.
When you are aware and thoughtful about your finances, you are fully in the driver’s seat. You get to make the decision to say “I would rather save $100 less and have a night out with friends.” Or I would rather not own a car and be able to pay for multiple weekly workout classes. It’s all up to you and your values.
Recognize Long Term Changes that Affect Finances
Now of course it’s easy to pinpoint discreet purchases to reallocate, but you also need to consider the longer-term outflows that may seem fixed. For example, your rent or mortgage payment. Your rent or mortgage payment is fixed in the short term, but not indefinitely. You can make a decision to move to a cheaper apartment or home, saving on this outflow of cash. But maybe living downtown in a major city bring you a lot of joy. Again, this is totally up to you, but what’s important is to explicitly and consciously make this decision, and accept the consequences.
The other thing to think about is how the decisions you make affect your long-term financial situation. Maybe you decide to move to a higher cost-of-living city. This will come with higher housing payments, likely more expensive groceries, and more activities to do that likely cost more as well. But it might also come with increased earning opportunity. Is this inherently a good or bad decision? It depends on what’s important to you. Aligning your spending to your values is key, and your values will differ from other people’s.
Expand Your Earnings – How Can I Afford More?
The last part of increasing what you can afford to do is what you might think of first – expanding your earnings. Now the reason I put this last is because often this is a long-term pursuit, and can be outside of your control. You can do all the right things, but reaching the level you want will take time and is affecte by external factors.
The Three Main Sources of Income
Now what are those right things? As far as I see it, the primary three sources of income are career, your business(es), and investing. You may have a combination of all three of these things contributing to your income.
Career
Career represents your job. It often comes with a set income based on hours or position. There may also be incentive-based income such as commissions or bonuses. To make more money in your career, you can upskill through courses or mentorship, investing in your own capabilities. This will open the door to progression in your current role or company, or the ability to get a better job elsewhere. This will increase the money coming in month-to-month.
Business
Your business(es) represent pursuits where you have an equity-interest, and control over the trajectory. This could be a traditional services business (like window-cleaning, painting, etc.), a content based business (like blogging, youtubing, affiliate marketing, etc.) or something else. Investing time and energy into expanding this pursuit through education and strategic decisions can have great effect on your long-term earnings. This can impact how much money you bring in monthly, and also build long-term wealth.
Investing
Lastly, there is investing. This is where you are putting the money you’ve earned aside into assets such as stocks, bonds, real estate, etc. Investing often doesn’t yield the same monthly cash-flow, but it will result in long-term wealth generation. The way to expand your investments is to put more money into them, and give them time and space to compound. Investing early into assets can free up monthly cash-flow. Your investments will reach a point where you’re making more from the compounding than the contributions, and you may not need to continue to contribute monthly to grow your wealth.
As noted, all three of these ways of expanding your income and net worth do not have concrete action to result. That said, you can take action to result in long-term benefits. This is a longer term pursuit to take alongside prioritizing your spending to figure out “how can I afford” all that you want.
Conclusion – How Can I Afford What I Want?
The answer to “how can I afford…” is not always a matter of making more money, but rather prioritizing the money you’re already making, and recognizing when things you want aren’t actually a priority. When things come up that you can’t make fit, that’s where the income expansion comes in. This will increase the total pool of capital you have to allocate through long-term habits and actions.
So now, I challenge you: Get a baseline of your finances, determine how much is coming in, and where it’s going. From there, think – am I spending money on what I deem most important? Am I willing to give up something to be able to afford what I want? You should be in full control of your finances – take ownership and allocate based on your values. Start finding the answers to “How can I afford to….”