Feeling the urge for a big purchase? Looking at some pricey things like a house or a new car? If the answer is yes, it’s time to start some planning! Big purchases should only be made after some careful considerations have been thought through. Only you can define what a big purchase is; however, it’s typically something that is outside your normal means of spending. A big purchase is one that typically causes a hit to your savings.
Here are 5 questions you should reflect on before you make any kind of big purchase:
1) How much money is really in your account?
Do you have your monthly expenses covered? Do you also have cash stored in case of an emergency? You never know what’s going to happen in the future. You want to make sure you have enough to cover your expenses as well as any unforeseen things that may happen. If you’re making a big purchase, you want to make sure you have enough for that purchase, your current expenses, as well as anything else that may come up. A good rule of thumb is to make sure you have at least 3-4 months of your income/salary saved up to pay for current expenses like rent, food, loans, etc., before making a big purchase. Ensure that you can make the purchase and have enough saved for expenses in case you lose or job or something unforeseen happens.
2) Is now the right time?
Consider if your big purchase needs to happen now. Obviously, there are circumstances in which you may need to make a purchase now. However, if that’s not the case, consider if you can wait a few months or another year. Think about how much money you might accumulate and save by putting off the purchase for when you’re more financially stable. You might pay off some debt as well as some current finances that you have in the process, thus putting you in a better position to buy what you want.
3) Could there be a more affordable alternative?
Let’s say you’re looking for a car. You’ve fallen in love with a new model that you just have to have…until you see the price tag. Instead of investing in something that will strain your wallet, consider finding an older or used model of whatever you’re trying to attain. If buying another model is not an option, consider putting off the purchase until you’re more financially stable.
4) How do you want to make the purchase?
If you’re making a big purchase, do you have the option of just paying in cash? Not many people are going to be able to say yes to that. I would recommend not putting everything on a credit card as that will hurt you if you’re not able to pay the credit card off immediately. It’s not healthy for your credit score to carry a large balance on a credit card either. The alternative is, do you want to take out a loan for this? Do you know how to go about doing that? Consider that if you take out a loan, then you’re going to be making installments to pay back that loan over time. Do you have enough money to make those monthly or weekly payments? Don’t forget there will also likely be an interest rate, resulting in a higher total in payments than the actual cost of the object you’re buying.
5) Did you do your homework?
There are more questions beyond the ones above that you should be considering before you make a large purchase. There is no right answer to these questions, but it’s important to have answers. Be sure to do the research. Don’t go to the first bank that will offer you a loan. Don’t put everything on a credit card. You want to make sure that you make the best decision that sets you up for a financially stable present and future.