Hint: They can all help you avoid unnecessary debt!
Research shows more Americans are ditching car and furniture showrooms to buy from the comfort of their own homes.
Sixty-four percent of consumers are likely to make big-ticket purchases online, according to PYMNTS, a financial analysis site. This is a sign of changing times, but some old rules still apply.
Before you click “Add to Cart” for a couch on Wayfair, answer these 10 questions first…
1. Why am I buying this item?
For everything you buy, have an actual purpose beyond just wanting it. If you’re considering a new car, a good reason to buy it may be that you now have children and need additional seating. Or, you plan on buying a new laptop because your older computer no longer works.
Having a valid reason builds credibility for spending. Of course, you can still justify a purchase by saying it will add enjoyment to your life.
2. Does it add value to my life?
Once you know the purpose for buying something, the next step is to connect that purpose to a specific return. When you invest in anything by spending money, it should give you some type of value. Defining this value gives a greater justification for buying an expensive item.
Let’s return to the car and laptop from the previous slide. When you buy a car with more seats, then you don’t have to take two vehicles to an event or ask someone else to give you a ride. The return for the big-ticket item here is more control and options.
A new laptop could add value by helping you work more efficiently. If you run a business or freelance, your clients may be more satisfied with your work.
3. Do I need the item now or can I wait?
Today’s world is all about instant gratification. Millions of people make impulse purchases both online and in stores every day. Credit cards can make it very easy.
Maybe you want an item right now so you can enjoy it and show it off on Instagram. That’s probably not the best decision since you don’t truly need it at this moment.
Spend your money on things that can’t wait. If you’re going to buy the laptop, do it because your older computer just doesn’t work well anymore. Ask yourself whether you truly need the item now or if you just enjoy the rush of buying things.
If you can wait, one option is to sign-up for a layaway plan that lets you make payments over time, before picking up the item later.
4. Can I afford to pay for it?
The affordability question is a pivotal part of your purchase decision.
You need to know how much cash you have on hand as well as what percentage of your income it takes to cover the cost. If you’re living paycheck to paycheck already, then the answer is you can’t afford to buy the big ticket item.
If you have some cash reserves or you can use a combination of cash and credit, then you may be able to afford it.
Let’s look at affordability more closely in the next slide…
5. How will buying it impact my cash flow or reserves?
Maybe you have enough in the bank right now to pay for a big purchase. But, what if spending that money means you wipe out your reserves?
Put yourself on a budget to get a better sense of what your cash flow is like. Start by knowing how much money you’re making and how much you’re spending each month. It’s always a good idea to leave a reserve of cash in case of an emergency, or simply to pay next month’s bills.
6. If I use credit, how many months with interest will it take to pay it off?
Let’s go one step further. Say you decide to use some cash and pay for the rest of the big ticket item with credit. Or, you’re thinking about putting the entire amount on your credit card.
Before that, calculate how many months it would take to pay off. Figure it out based on making minimum payments or larger ones. You’ll need to account for interest costs too.
By using credit you’re paying more for the item because you’re making payments over time. Weigh the additional expense of interest to see if it’s still worth buying.
7. Did I find the best possible price?
With so much now available online, it’s easier than ever to compare pricing. There’s no excuse not to.
Also, consider the time of year you want to buy. It may be worth waiting for times when retailers offer special promotions. For example, car dealerships want to clear out older models when new models arrive, typically over the summer or by the end of the year. The holidays (and right after) also yield great deals.
8. Is there an alternative that costs less – like a used item?
It’s nice to have a shiny new vehicle, but those cars often lose value as soon as you drive them off the lot.
Have you considered a slightly used car? The same goes for refurbished appliances and electronics. Apple offers a huge refurbished goods store on its site. These alternatives are just as good and come with warranties to protect you should anything go wrong.
Another option is to look online for people selling, swapping, or sharing big-ticket items on sites like Craigslist.
9. What does my significant other think about the purchase?
If you have a significant other, make sure you involve them in the decision. Their opinion matters, too.
Since they may be less emotionally attached to the product, they may have a more realistic perspective on whether this is really the time to buy.
10. Will this big-ticket item make me happy?
There are many “things” that are sure to bring enjoyment to our lives. However, they can also bring debt. And, debt can lead to stress, conflict, and unhappiness.
Put these big-ticket items in their place and enjoy them, but know that real happiness can’t be bought. Making the right choices with your money and living life to the fullest yields more happiness than anything else.
Published by Debt.com, LLC