Looking to invest? What can you afford?

It seems that as credit is becoming more widely used and social pressure is increasing, the definition of “afford” is shifting at an exponential and potentially dangerous rate. Using households as an example, Corelogic states that from September 2016, the percentage of family income required for a 20% deposit is 125.3%. This statistic alone would cause you to scratch your head, but the chances are that you or someone you know is in the same situation.


The short term mentality

Spending money is a subject that not a lot of people have a grip on, it is human nature to focus on the shiny object in front of us as opposed to the consequence that may come as a result of acquiring it. With pressure from the Joneses across the street, and the ability to delay payments, irrational short term investing has become more prevalent than ever.

Although it may seem logical as a reader to delay gratification for a better future, it is hard for most of us when that new smart TV is placed in front of us that we’ve been eyeing for months, logic is then thrown out the door and emotion comes racing in.


Risky mentality

As credit and borrowing money became more commonly used, the frequency for larger than average investments has escalated. The mentality of making investments if the individual has enough cash on hand for the full purchase has shrunk. Although there are benefits to the other side of the coin, it has been abused to the point of emotional pain and financial grief for a lot of the population.

Nowadays, whether or not you can afford something is dependent upon not how much you currently have, but whether you can afford the loan payment or not. When viewed logically, this kind of thinking is absurd; it entails that you should invest in something while knowingly not having enough money to pay it off, and somehow hoping it will show up.

Almost never is there a long thought out plan as to how the individual who is purchasing will manage to pay off the mortgage or investment of whatever kind. With this kind of small thinking, the level of future angst that is inevitable to happen for people is only increasing, which causes the question, how do we defeat this mentality?


Logic over emotions

In a perfect and hopefully foreseeable future, more people need to have their financial priorities clearly understood with a budget, or else they risk mindless spending that will build up to months and even years of stress.

For people who are so conditioned into the short term way of investing, this will be tough, especially if you’re comparing to everyone else and selling yourself short on materialism.

The urge to impulse buy based on your emotions may be strong, but the only way to know what you can afford and invest wisely is to think long term. The optimal mentality for knowing what to provide means resisting the short term urges with discipline and reaping the long term rewards.


Let us help you

For over a decade we have helped clients build wealth through strategic and smart property investment, take care of your future and contact us for certainty and confidence in your investment decisions.