I've realised that, despite training as an economist, I don't have a mental framework for making financial choices. For instance, I'm thinking about buying a fun new road bike. In the narrowest sense of affordability (having enough money in the bank), I can easily pay for it. But beyond that, I have no idea where to begin in setting myself a maximum amount to spend.
Obviously this is partly a subjective judgement. But without some kind of coherent way of thinking about this sort of decision, it seems unlikely that my choices are maximising my utility
. It must be possible to do better!
So, Metafilter: Do you have some kind of mental framework for judging what is affordable? Do you set some firm long-term financial goals and then work out how much spending you can afford? Or seek to achieve a certain material standard of living now and save whatever's left?
Or do you use some kind of rule of thumb? Do you just rely on a vague sense of what 'feels' affordable?
And if you do
have a system, does it work?
For context, I'm: early 20s, in the UK, with some savings, in a comfortable but not particularly high-paying job.