Can I afford it?

B - Budget


What factors go into your decision making prior to you making any purchase? Does it come down to simply having enough cash to afford the item. Or does possessing the item trump your current financial circumstances because you’ve just got to have “it”? Deciding how to spend your money is one of the most important disciplines to maintain, as it is often put to the test.

But there is another way you should think about your money and spending habits. This way of thinking should be determined by your hourly wage. If you are a salaried employee you may not know what you are making each hour you are working.

First, figure out the average number of hours you work per week (these numbers will not be exact since the hours you work may fluctuate). Once you know your average hours logged with your employer each week, multiply this number by four. This is your total hours worked per month.

Now we can figure out what you make per hour. Determine this by taking your monthly pre-tax income (refer to your most recent pay stub if need be) and dividing it by either two if paid bi-weekly or by four if paid weekly. Finally take this number and divide it by the average amount of hours worked per week to come to your hourly wage.

The next step is to determine how much you make per day. Simply take your hourly wage and multiplying it by your typical work day.

Do you now know what this number is? Good.

Whatever this numbers breaks down to be you should never spend more than a day’s pay in any single day or in one lump sum. Purchases that exceed this number need to be planned and saved for over a period of time barring extreme emergencies, no matter the circumstances.  

Keeping your spending under this number will ensure you are keeping your spending in line.