ICFE eNEWS #16-36 - October 28th 2016
Does Accessibility Equal Affordability?
By Jim Garnett, a/k/a Ask Mr.G a member of the ICFE's Board of Educational Advisors
For weeks I have been working on this article trying to find
just the right words to express my thoughts. Then, yesterday
morning as I was fixing breakfast, a guy on a radio ad said
exactly what I am trying to convey to you.
The ad was one
for a nationwide mortgage lender, and the man in the ad had just
been notified that he had been pre-approved for a mortgage loan.
With that news, he confidently exclaimed, "Now I know how much
house I can afford!"
What he meant, of course, was that
he would now shop for houses in the price range of his
pre-approved loan. He had decided that if he was given access to
that amount, he must be able to afford that amount.
same scenario is played out in many different areas, whether we
are talking house loans, car loans, student loans, or even
credit limits on our credit cards. The thought process works
something like this: "They would not offer me that car (house,
boat, credit limit, or loan) unless they were absolutely sure
that I could pay for it. After all, they work with finances
every day and know much more about what I can afford than I do."
This thinking places the lender/seller in the position of
being a personal financial consultant whose purpose is to tell
us what we can afford.
So let me ask you, "Does
Accessibility Equal Affordability?"
I believe it does
not. And furthermore, I believe that this assumption is
responsible for many Americans buying things they cannot afford,
living beyond their means, and eventually digging a hole of debt
from which it may take years to escape.
Rasmussen survey revealed that almost 50% of the 3000 people
surveyed said they at times spend more than they make, and 36%
of this 50% said they will dip into savings to make up the
shortfall. Another 22% of the 50% said they will use their
credit cards more in order to remain current on their monthly
bills. Still another 8% of this 50% said they will borrow in
other ways to compensate when they have spent more than they
An interesting note is that only 10% of those who
said they spend more than they made admit they are "living
beyond their means." I always thought that "spending more than
you made" was a good definition of "living beyond one's means."
Especially, with reference to credit card limits,
accessibility does not equal affordability. This is verified by
the fact that most credit card holders do not pay off their
balances at the end of the month, and of those who do not, the
average family combined balances total over $15,000!
accessibility does not equal affordability, how does one figure
out what he can afford? And if we should not rely on the loan
officer or seller to determine for us what we can afford, to
whom should we rely? Simply: We Should Rely On Our Self.
"But I do not have a degree in finances! How would I go about
figuring our what I can actually afford?" The good news is this,
dear friend. It does not require a degree to figure that out. It
really is not that difficult. Let me outline how to do it in
three simple steps.
First, we must discover what we
presently spend. That is something most of us do not know. So,
we must gather our credit card statements and our checkbook
ledger to see where and how much we are spending each month. Be
sure to reduce bigger expenses like property taxes and insurance
premiums to a monthly amount so you don't forget to include
them. Also include how much cash you spend by keeping track of
it in a pocket notebook for 30 days (This may be a real
Second, we must compare that amount to what we
make. Again, reduce all sources of income to a monthly amount.
If we are already spending more than we make, we have two
options: make more or spend less.
Third, decide if the
added expense is feasible. Ask yourself questions like these:
• Do I already have enough money left over to cover this
• Can I cut back on other expenses
proportionately so as to allow for this new expense?
• Am I
willing to work more in order to generate more income until the
item is paid for?
Comparing our spending to our earnings
is the only way to accurately know if we are in a position to
take on additional expense, and if so, how much. Sadly enough,
because of our frequent use of credit cards, most of us do not
Going through this three-step process requires only
a knowledge of elementary math, but it will put us way ahead of
the curve in knowing what we can spend at any given time, and
what we have to do to make it happen.
not equal affordability. Being able to get it is not proof that
we can pay for it.
© Jim Garnett, The Debt Doctor
AskMrG Consulting, LLC
2216 SW 35th Street
Ankeny, IA 50023