Definition by consumption and impressions of affordability

I'll go on a limb and admit that I'm a bit of a hypocrite -- I'm going to criticize a behavior of which I myself have sometimes been guilty: Definition by consumption.

Many people tend to define themselves by their possessions. I do it; my family does it; my friends do it; and you probably do it, too. We get excited by the things that we think are cool and hip and, in our interest of keeping our image commensurate with the times, we spend without thinking.

Advertisers understand this phenomenon and capitalize on it. Ads are designed to answer our questions about self identity and help us understand what's in and what's out -- all during primetime. It's partially because of ads that we feel the pressure to buy the high-def TVs and the iPhones. But it's because of the silent, yet sensed burden to please and impress our friends and family that we actually buy them.

By the time we feel that we've satisfied our friends and even ourselves with our possessions, our overspending has most likely become habitual. Just like smoking cigarettes, we know it's bad for us. But because the habit controls us, it clouds our judgment and keep doing it anyway. As a result, we have false perceptions about the affordability of the things that we buy.

When I see a recent college graduate spend his first paycheck on a 60" TV or a new gaming computer, I tend to wonder if his buying is in line with his own financial wellbeing. My first big purchase was a car. As soon as I graduated and started getting a real paycheck, I bought a brand new car that was out of my league. Though I still own the car and continue to make the payments, deep down I regret the purchase. I felt entitled to a new car; I deserved it because I had a great job. And I let that entitlement go to my head and refused to consult my financial plan and perform an objective analysis. Instead, I convinced myself that it was a good idea.

If I had performed an objective analysis of the purchase, I would have realized that I had an armload of student loans, several thousand dollars worth of credit card debt, and almost no savings. Let's not forget to mention that my current car was paid off and running like a charm. Yes, I had a decent salary and was managing just fine, but I didn't have any financial goals. I didn't understand the importance of saving for retirement or having money in the bank put away for an emergency. My own definition of affordability had a different definition in those days: if I had more money in the bank than the item's out-the-door cost (down payment, etc), then I could afford it.

What would happen if my wife called me, upset, and told me that she found out that she might lose her job? It would be a surprise to both of us, but neither of us would have to lose our minds. She and I have worked hard to make a financial plan for ourselves and we've stuck to it. Because of our emergency fund, we would be able to survive for a few months. No matter what your definition of affordability, I can tell you that unless you have some savings, you can't afford break in income.

So am I saying that you can't buy a new TV or go to a restaurant or ever catch a whiff of that new car smell? Of course not. But before you make your big purchases, think of the big picture. Pretend that you're a business analyst evaluating the cost-effectiveness of a new project -- and that project is your life. If you're a recent college grad, set a goal for how much money you want to keep in the bank on a regular basis -- one, two, three, maybe six months' pay. Establish your goal and stick to it. Once you've met your goal, or are at least headed in the right direction, then you can make the trip to Best Buy or the car dealership.

Sure, you can impress your friends with electronics and fancy service, but does that really matter in the long run? Any dork with a job and a driver's license can get a credit card. You show me a person that is financially independent and I'll show you a person that impresses me.