Practical, Bible-based money management advice, tools and techniques


Affordability Index


To access the Affordability Index Calculator immediately, click here.

affordWhat does affordable mean to the average consumer? How do we define affordable with debt easily available nowadays? Low interest rates are seducing consumers deeper in a financial hole! Really, does affordable matter when consumers seem to be coping with increasing debt loads? Then again, do we consider affordable housing separately from affordable medical care, or affordable transportation?

I believe we should view affordable in two ways. For a house, we should consider affordable as the ability to make a downpayment of at least 20% with zero consumer debt, and a mortgage that fits in a otherwise debt free budget; It is ability to buy the house so that the total estimated ongoing costs, including a mortgage, do not compromise current and projected household budgets, plans and commitments. For all other items, affordable is the ability to pay for an item without debt, and not compromise current and projected household budgets, plans and commitments.

Today, people don't consider affordability before spending; instead, they look at payment terms. I suggest the overarching goal for each household should be to live a debt-free lifestyle. Therefore, households should consider affordability before committing to spend. That's why I developed the Affordability Index.

I believe a person should not borrow to buy any item other than her home. Accordingly, excluding your home, you can't afford to buy an item if you must borrow to get it. To buy a vehicle, a fridge, stove, or other consumer item, pay cash, including using a credit card and paying the full balance.

Who Decides Affordability

Governments try to define affordability for us. They want households to use the same reckless Ponzi-style funding they use to waste taxpayers’ monies. Reject their approach. Each household memeber should decide if he or she can afford to buy a home. Here is a simple checklist I suggest you review. Ensure each of these criteria exist before you conclude you can afford to buy a home.

  1. You are debt free.
  2. Working with a monthly budget.
  3. Know your housing needs such as needed space. For example, will the family size increase shortly?
  4. Have at least 20% down payment for a conventional mortgage and so avoid mortgage insurance.
  5. Understand and accept sacrifices needed to pay the full yearly housing costs. What might you have to give up to pay these costs regularly?
  6. Understand current and projected state of the economy and housing market, and feel reasonably comfortable you will be able to fund your total housing expenses for six months, even if you were laid off. This article on speeding up mortgage payments might help you.
  7. Understand the best approach for mortgage life insurance.

What Happens If You Must Give Up Your Unaffordable Home

To get a grip of this challenge, separate two decisions. First, can the home owner afford her present home? Second, if no, how can we work with her to provide affordable housing? While mulling over these two questions, review these seven housing myths.

If the person or family can’t afford the home using my definition, move directly to question two. Don’t try to give so called help by lowering or deferring a few months' mortgage; that’s dishonoring and wasteful. Dishonoring because it gives the impression the family will be able to keep its home. Then, in a few months the family must give up the home. The approach is wasteful because time and money is spent knowing the family must leave the house.

In these situations, focus on lifestyle counseling including financial planning. Stress lifestyle issues such as affordability, budgeting, anatomy of a mortgage, and stewardship. Teach the virtues of renting when folks can’t afford to buy homes; it is a virtue. Some ownership arrangements give home owners significant risks with no equity. That’s why so many mortgages are higher than home values.

Folks in unaffordable homes need counseling as they work with churches and charities to prepare them to live in rented homes. This could be a long journey. But, if folks reject the victim path and learned from their errors, it could be rewarding.

Affordability Index Calculator

The affordability calculator will help you answer this question: Can you afford your lifestyle? If you want to be a good steward of God's money and practice effective biblical stewardship, you need to ensure you can afford to spend before you spend. The affordability index is a Christian financial management tool designed to help you stay away from debt. If you use it routinely, you will live debt free.

We developed the Affordability Index to help folks decide, based on preset conditions, if they can afford major outlays. We defined affordability earlier as the ability to buy consumer items without going into debt, and without compromising prior needed commitments. This procedure does not replace dependence on God. Instead, it's meant to help you clarify wants from needs so you might focus your prayers. Let Jesus be your final decision maker. The Affordability Index quantifies contemplated spending decisions based on our PLANE Spending Analysis that asks these five questions:

Did I Plan this expenditure and did I include it in my budget?
Will the expenditure increase my Loans?
Are there realistic Alternatives to achieve my spending objective?
Is the expenditure Necessary to achieve my spending objective?
Is this the most Effective use of resources now, relative to my life goals and budget goals?

The Affordability Index has two preconditions. First, define precisely the spending objective. Why am I spending? For example, you might wish to change your car. However, that's not a good spending objective. The real issue is this: What are my current and medium term transport needs? This is a different question that could produce a different answer. Think about this carefully because poor spending objectives' definitions normally lead to excessive spending based chiefly on clever, seductive advertising.

The second precondition is to ensure the proposed spending conforms to the GAS Principle. If it does, answer the PLANE questions above based on a proper definition of your spending objective. After, fill in the Affordability Index Calculator below for the item you believe fits the objective. Decide to apply the Affordability Index to all spending on individual items greater than a predetermined amount. Husbands and wives should use it together. When you use the Affordability Index, always review Matthew 6:24-31. Recall Jesus' promise to supply our needs.

For more information on both the Affordability Index and the PLANE Spending Analysis refer to The New Managing God's Money-The Basics pages 225 to 237. There you will see suggestions to evaluate two exceptions; a car for work, and a special one-off item called a "vase". We would appreciate your comments.

What am I buying? What's my objective?

Why am I buying this?
(Don't assume you need an item being replaced. Re-justify it! Define the need generically: You don't need a car, you need transport, which the public system could supply!)

"PLANE" Questions Score Comments
Plan If you did not set aside funds for this, select "Not Budgeted".
Loans If you plan to pay by credit card, select "Unchanged" only
if you have reserved the cash to pay the balance in full.
Alternatives Is there an alternative to do the same objective? Not an alternative objective, but an alternative for this objective. This Index assumes you have identified the need to do the objective. It's merely helping to decide if you can afford to carry out this need.
Necessary Necessary for the stated objective.
Effective Is this the most effective use of God's resources now?
Seek to know God's will for you in this decision.
Even if you scored "0" for each item above consider this:
If you used these funds now, would it prevent you from doing a different objective?
Total Score  
Scoring System:

If the total of the five selected items is less than 6, you can afford this item.
If the total of the five selected items is "6" or greater, you cannot afford this. But, this is merely an initial guide, go to God and let Him guide you.

Print this Frame