Broker Check

Keys to Financial Happiness #6

May 03, 2016

Don’t Spend More than You Can Afford.

This may seem like common sense but it is unfortunately all too uncommon.

Charles Dickens wrote:

“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.” 

This quote sums up the relationship that many people have with money. Those who spend less than their annual income often feel secure in their financial future. Meanwhile, those who spend more than their annual income, accumulating debt in the process, often feel money-related stress which leads to misery.

The first key to not spending more than you can afford is to understand what your target budget should be. This requires an analysis of your financial situation to assess your financial resources including wages, pension income, and investment income; an estimate of the amount needed to pay non-discretionary spending such as taxes, rent or mortgage payments; and the amount needed to fund long-term financial goals, such as retirement or children’s education. The remainder is the amount you can afford to spend.