The Difference in “Can’t Afford” and “Can’t Justify”

by Kevin on October 7, 2013

How many times in the last month have you said, “I just can’t afford to do that”?

Maybe it was a sporting event your friends wanted you to go to. Maybe it was that shiny new car you saw at the dealership on your way to work. Or maybe you just wanted a cookie at the mall? (Ahem, one of my weaknesses… Great American Cookie Company Double Doozies. Calories? What calories?)

Whatever it was let’s look at the word choice: can’t afford it.

Is that really true? Are you that broke? Or are you making a better financial choice and the meaning of what you said is “I can’t justify spending the money”?

Can’t Afford It vs. Can’t Justify It

What’s the difference?

Can’t Afford It

I can’t afford to buy an island. Nor can I afford to buy an NFL team. These are things I’d love to have, but I am financially incapable of paying for them.

I don’t have the assets, cash flow, or income to pay for them outright or on payments.

To me, this is what you are really saying when you say I can’t afford it. It is an admittance of financial incapability.

Maybe it is different for you. Maybe you can’t afford to take a vacation because you’re strapped with debt. Maybe you can’t afford to update your beater of a car that keeps running (for the time being) because you’ve spent more than you earn in the past.

Can’t Justify It

I’d love to own a Porsche GT3 with an MSRP of $130,000. And truly speaking if I really, really, really wanted to I could afford to buy one. I’d need a 60 month loan at 1% and a $10,000 down payment all to get my payments down to the low, low price of “just” $2,051 per month. (I would also need expensive training on how to safely drive it, but that’s another story!)

And I’d really be stretching financially — we would have to stop all saving including retirement — but I’m pretty sure just by the hairs on our chin we could make it work.

That means I technically CAN afford to buy a Porsche GT3 brand new off of the lot.

But I can’t justify it. I would be sacrificing retirement, our emergency fund, and our financial freedom for the next 5 years to buy the car.

Side note with math!: Truly I would be sacrificing our financial freedom much longer into the future if you take into consideration the impact of not saving for retirement for 5 years. We’re talking about approximately $700,000 difference in a nest egg at age 65 by taking 5 years off. (This is assuming a total of $11,000 contributed to Roth IRA accounts annually, $13,000 after age 50, and 8% annual returns for the whole portfolio.) Vacating $55,000 worth of Roth IRA investments at our young ages has a much larger impact down the line than if we were at age 60.

My Porsche fantasy is an over the top example, but this applies to every day living as well. I can’t justify eating out three times per week. I can’t justify buying an entirely new wardrobe every fall and spring.

The next time you say, “Yea… I can’t afford that”, question yourself. Can you afford it? Or are you making a wise financial decision and declaring you can’t justify to spend money at that moment?

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