Financial Tools / Affordability Index Spending Decision Process
Affordable is subjective and means different things to different people. According to Merriam Webster Dictionary, it means being within the financial means of most people. However, the dictionary doesn't define financial means. I define affordable for everything except a house as follows: Spending a specific amount or committing to spend those funds without increasing debt, provided that commitment does not preclude obtaining a foreseeable future need debt free. With loans readily available nowadays, it's essential we keep this affordable definition in mind. Unless we have a firm grip on affordablity, we will not be effective stewards.
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Governments try to define affordability for us. They don't care if you add to your debt; they want you to spend. They want households to use the same reckless Ponzi-style funding they use to waste taxpayers’ monies. Reject their approach; each household member should decide if he or she can afford to spend. You decide affordability, not governments or merchants.
To get a grip on this challenge, separate two decisions. First, can you afford your present home? Second, if no, how can you get affordable housing?
If you can’t afford your present home using my definition, move directly to question two. Don’t try to juggle the numbers by lowering or deferring a few months' mortgage. This does not deal with the root cause. Look at your lifestyle; understand renting can be a virtue. Some ownership arrangements give home owners significant risks with no equity. That’s why so many mortgages are higher than home values. While mulling over these two questions, review this article about when you're better off renting than buying a house.
If you are in an unaffordable home, this is a significant, difficult challenge. How you got there will vary from person to person. Some made bad choices, while unexpected events jolted others. Still, there is no easy way out. Pragmatically, your options are limited. The first activity is to reject the victim path, identify errors made, and commit to correct them. After exhausting lifestyle changes consider lifestyle counseling if needed (maybe your pastor or relevant charity). Next, explore avenues to increase income. However, you might conclude that you need to sell the home and begin renting. This journey could be long. But, it could be rewarding for the future if you learned from your errors, and developed a firm and a healthy attitude to lifestyle management. seven housing myths.
The Affordability Index Calculator will help you answer this questions: Can you afford your lifestyle? If you want to be a good steward of God's money and practice effective 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:
The Affordability Index has two preconditions. First, define precisely the spending objective. Why am I spending? This is the key, understanding why. For instance, 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 appreciate your comments.
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Before you implement financial decisions, consult an Independent Financial Advisor. Scripture quotations, unless otherwise noted, are from the New International Version (NIV) of the Bible (Copyright © 1973, 1978, 1984 International Bible Society. Used by permission of Zondervan Bible Publishers. All rights reserved.)