Suzie Orman runs a popular program in the US of A which is simply titled “Can I afford it?” wherein people call in to ask “Can I afford a second hand Mercedes which costs me $ 45,000?”. Then Suzie sizes up the situation checking up whether the person has some money in her/his savings account, retirement account, existing debt, etc. and says “Yes you can afford it” or “No. you cannot afford it”.
There is one important question that is missed. Does this person NEED it? If I am going to travel 18 km a day for 5 days a week, do I need a Merc or a smaller car will do?
This is the essence of financial planning. The planner should be able to make the client do the following:
1. Set the goals
2. Make it into Needs, Wants and Luxuries
3. Priotrize the goals
4. Allocate the funds towards the goals.
Should I be buying something because I can afford it or should I be buying it because I need it. I think my usage of any asset should take into account my need and how abusive it is of the environment. If all of us think this way, maybe we will have lesser complicated lives. Both financially and physically.
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