Do These 5 Things Before Your Next Big Purchase
Whether it’s a vehicle, gadget or property, a big purchase is a commitment that can affect you financially for the long term. Not only might you need substantial cash upfront, but your purchase could also require using credit and making years of payments with interest.
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Plus, it might conflict with your other financial goals. Here are five things you can do to make sure your major purchase is a good idea and prepare your finances.
1. Don’t Buy It Right Away
You might feel so excited about a major purchase that you buy it immediately. However, this can easily lead to regret when you realize you don’t really need the item or you can’t afford the monthly payments. You might also find that you made the decision for emotional reasons, such as going through a hard time or wanting to fit in with others.
In a Facebook post, Dave Ramsey suggested sleeping on a major purchase decision, and you may even want to wait weeks if it involves thousands of dollars. Consider speaking with others about the purchase to get their insight and cover any financial effects it will have on them. You might discover that the timing isn’t right or change your mind about the item.
2. Look At Your Current Financial Situation
Even if you can justify a major purchase, don’t proceed without thoroughly assessing your finances. Review your budget for current and upcoming expenses to make sure you can cover those. By looking at your income and existing obligations, you’ll see how much you can afford to spend on your purchase.
If you plan to use financing, consider how the debt payments would fit in your budget. Plus, don’t forget other ongoing expenses associated with your major purchase, such as fuel, insurance and maintenance for a vehicle.
Lastly, look at your other financial goals. On her blog, Suze Orman recommended checking your progress toward debt payoff and savings and considering “building up your financial defenses” before buying something expensive. It may be wise to delay a purchase to build a healthy emergency fund, eliminate high-interest debt and be able to pay with cash.
3. Do Your Research
Once you’ve decided on a purchase, extensively research the item online. For example, if you’re buying a new gadget or home appliance, you’ll want to look at reviews, check the warranty details and verify it has the right features. When researching vehicles, consider details such as safety, performance, reliability and any vehicle history reports.
It helps to do side-by-side comparisons of multiple options and compare the pros and cons. Don’t forget to also consider the seller, including their reputation for customer service and support. You might want to get professional guidance, especially before buying a property or vehicle, or ask people you know about their experiences with certain products and companies.
4. Find the Best Price
While researching, look for ways to get the best price. One option is checking prices for different options across multiple sellers online and taking into account any fees involved. And if you’re buying something for which you can negotiate the price, get familiar with the current market prices so you improve your chances of an accepted offer.
Keep the purchase’s timing in mind since the item could go on sale if you can wait a bit. You might also think about buying used versus new to save some money. However, this could mean giving up a warranty, paying for more maintenance or needing to replace the item sooner.
5. Decide On a Payment Method
When you’re ready to buy, using only cash can be ideal since you won’t have to worry about debt and interest. But if that’s not possible, you’ll want to find the best financing option and make sure you can qualify based on your credit score, income, existing debts and any down payment needed.
Before using a credit card or loan, carefully compare the terms and costs of multiple options. Online calculators can help estimate your payment amount and interest paid. You can also submit some basic financial information to prequalify through lenders and see your potential interest rate and credit limit.
With any financing option, make sure the interest and monthly payments are affordable. Try to avoid special loans and credit cards for bad credit since the financing charges are usually high. And if you use any no-interest promotional financing option, read the fine print to avoid surprises such as deferred interest when the promotion ends.
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