Every little bit counts when it comes to finances, especially spending. We’ve all seen the posts on social media that show how much buying just one coffee a day adds up over the course of a year, right? Small expenses can certainly total up to a big number over time if you don’t pay attention, but it’s equally if not more important to be careful with large purchases. The old phrase, “penny-wise, pound-foolish” exists for a reason! After all, you can spend a whole year being extremely careful with small purchases, just to spoil all that effort with a large purchase that you didn’t think through properly!
To help you avoid falling into the trap of making a mistake on a big expense, let’s discuss seven questions to ask before making a large purchase:
Paying with a credit card means hiking up the price with interest payments unless you can pay it off immediately. If you’re considering making a big purchase with a credit card that you can’t pay off right away, try thinking about it like this: estimate how long it will take you to pay off the debt, calculate the interest you will accrue, then add that to the price of the item. If the item will actually end up costing you $200 more than the listed price due to interest, are you still willing to buy it?
Hopefully, if you’re making a big purchase then you’re doing a lot of thinking about it and researching your options. If that’s not a habit you’re in or a major item happened to catch your eye in a store, then take a step back and consider if you can get a better price than the first one you saw. Comparison shop at other locations to see if you can get a better deal, search for coupons or other discounts, or you can even consider getting the item pre-owned for a steep price cut.
This question can help bring the expense you’re considering into a different perspective. Sure, if you just got your paycheck yesterday and your account total looks great, then it might seem like nothing at all to spend a huge chunk of it on one item. However, if you think about your past week of work and all the painful meetings you sat through, all the tedious emails you wrote, or all of the physical labor that you endured to earn your check, it may not seem like such a small thing to spend that money.
Often times, a big purchase seems like a great idea when you consider it all by itself. However, if you consider what you’d be giving up to make that purchase, it can change your perspective. It would be great to have a new TV (even if the old one still works fine), right? But is it still as great if you could finance a month’s worth of social events with that money?
We all deserve to treat ourselves for our hard work and effort from time to time – just not too frequently! If you picked up a designer handbag or finally broke down and bought a PS5 just last week, you’re best off waiting a bit before buying the expensive item that’s caught your eye today.
Some items are expensive for silly reasons like it’s a designer brand or a celebrity endorsed the item. However, other items are expensive for good reason – they’re items that will last a long time and through many uses. If the big price tag you’re thinking about paying is for an item that you will only use a few times, it may be expensive for the wrong reasons and is best left on the shelf. If it’s something you’ll use all the time that you can rely on to last, then the price may well be justified.
If you’re considering whether to buy a pricey item or not and all you’re thinking about is what it would be like to have it vs not, then it might be difficult to convince yourself you don’t need it. Try giving yourself an alternative to think about. Calculate how much the money will be worth in a year if you were to put it into a savings account or other financial instrument instead. The power of compound interest is real, and you might not make that purchase if you see how much more that money could be worth.
Being smart with small expenses is very important to your financial outlook, however it’s also vital to think carefully about large purchases so you don’t un-do all of that vigilance! By pausing, taking a deep breath, and considering these seven questions, you can change your perspective on that large purchase you’re considering. While at first glance, your impulse might be to go ahead and make the purchase, if you take a step back and consider the answers to these questions, you’re more likely to come to the best answer for your financial bottom line.