Making a major purchase is a big decision that shouldn’t be taken lightly. Depending on your income level and amount of expendable cash, the definition of a major purchase can vary. In general, most people consider any purchase that will deplete savings or result in a monthly payment as a major purchase.
Before you make a decision regarding a big purchase, you should ask yourself the following 5 questions to decide whether you should proceed.
1. Can you afford it?
Can you pay for the purchase in cash or do you need to finance it? Financing makes the cost of the item increase due to interest and financing charges, so unless you are sure you can afford it and can pay cash for it, you might want to reconsider the purchase.
2. Is the item a want or a need?
If the item is a need, you will find a way to get it. If the item is a want, like a new computer or an electronic, you might be better off waiting. New versions of technology come out all the time, so if you’ll still be paying off the equipment by the time the next generation comes out, you might be better off saving to reduce your interest payments rather than seeking instant gratification.
3. How long will the item last?
If the item won’t last long enough for you to pay it off, you might want to reconsider buying it. Cars are a great example. If you need a car, you might be tempted to pick out a used car with a lot of miles that isn’t very expensive. Once the financing is done, you might be looking at 5 years of very affordable payments, but if the car won’t last 5 years without needing major repairs, you might not want to keep looking.
4. What does your spouse think?
If you’re married, consulting your spouse is a must. Any major purchase should be made between both parties, even if you don’t have joint checking or savings accounts. Money is one of the most fought about things between partners, so avoid trouble by consulting your significant other before you head to the checkout counter.
5. Could you get a better deal somewhere else?
Shopping around is a must when you’re making a major purchase. Shopping around can save you hundreds or thousands of dollars, especially when you take into account differences in interest rates and finance charges. When on the search for new cars, always keep your eyes open for discounts and promotions being offered. Also be sure to travel around, your local auto dealer may not have the best new car deals.
Asking yourself these five questions before making a major purchase will help ensure that you get the best deal and avoid buyers remorse. It’s never wise to jump into a big purchase, so be sure that you know what you’re getting yourself into before you sign on the dotted line.