As you go through life, you inevitably have to make big-ticket purchases. Cars, houses, holidays – they don’t come cheap.
In principle, there’s nothing wrong with spending a lot of money in a big lump – and even borrowing to do so. The trick is to ensure that you’re getting value so that you don’t wind up with regrets later on in life.
In this post, we take a look at the critical questions you need to ask yourself before making a big purchase. You want to make sure you avoid feeling like you wasted your money and could have had a better life by spending it differently.
So how should you be quizzing yourself?
Question 1: What Value Does This Item Bring To My Life?
Marketers are very good at making you think you need something when, in fact, you don’t. And that can lead you to all kinds of trouble. You think, for instance, that the product will make you happy or give you status. But then a couple of months later, you’re back to the grindstone, wondering what’s next.
When this happens, it’s a good idea to think in a very matter-of-fact way about the impact of the purchase on your daily life.
Let’s say, for instance, that you like the idea of owning a motorcycle for riding for leisure. If you don’t already have a car and intend to use it for work every day, it could make a big difference to your quality of life, allowing you to weave in and out of traffic. But if you’re just going to use it for an hour on a Sunday afternoon, is it really worth your time. That one hour of enjoyment comes at a massive price.
You can think about vacations in the same way. When you’re stuck in the rain at home, looking at a brochure full of tropical beach images can be very enticing. You imagine your toes in the warm sand and the waves lapping at your feet. But once the experience is over, you have a much smaller bank balance. And you’re left wondering what all that expense really brought you.
Question 2: Can It Wait?
Asking yourself whether you can wait is another great way to figure out whether you should buy an item or not because it tells you whether you really need it, according to thebalance.com.
Let’s say that you’ve just landed a new job several miles from your home and can’t cycle to the office anymore. In that case, you need a car right now and the purchase can’t wait. Buying it will allow you to earn a salary and get a raise.
Now suppose you’re looking at buying a house because you want to live in the countryside. It can seem like a good idea at the time because it will give you a higher quality of life. But usually, a purchase like that can wait. You don’t need to move immediately.
Question 3: Can I Afford It?
Big-ticket items are, by their nature, the least affordable purchases you’ll ever make. Most people only buy one or two homes in their lifetimes because of the expense.
It’s a good idea, therefore, to ask yourself whether you can really afford to make the purchase. Affordability doesn’t just mean having the income to cover the repayments. It also involves taking into account how the purchase will affect the rest of your life. Will you still be able to do all the things that you want to do in your leisure time? Or will you have to work longer and harder to get what you want?
Sometimes, the cost of a big purchase for the rest of your life can be too great, even if your bank balance says that you can cover the expense. So always bear this in mind when making a decision.
Question 4: How Long Will It Take Me To Pay Back If I Use Credit?
Most people take out credit from sites like Plenti.com.au when making large purchases. When interest rates are as low as they are today, it makes a lot of sense.
But it is important to think carefully about how long it’s going to take you to repay any money you take out. Most lenders will tell you the term of the loan – how many years you’ll have to make payments. But only you can decide whether this fits into your lifestyle.
If you take out a mortgage, for instance, you’ll need to consider your earning potential in the future. Will you have an income that can support repayments for more than a decade?
You also need to consider your age. If you’re getting older, then you’ll have fewer working years ahead of you to make repayments on any loan.
Question 5: Have I Found The Best Price?
Prices for big-ticket items tend to vary wildly. Even house prices in a certain area can go up and down over the course of a year. Holidays particularly are notorious for their variation.
It’s critical, therefore, that you ask yourself whether you’ve found the best price for the item you want to buy. Sometimes the amount you pay will depend critically on the season or conditions in the market. Just waiting and observing prices can give you an idea of what’s a “good” price, and what isn’t.
Question 6: Is There An Alternative That Costs Less?
Lastly, you might want to think about whether you can make do with an alternative that costs less.
Would renting a small apartment instead of buying a detached house be feasible, given your current situation?
Could you continue riding a bike to work, instead of driving there in a new car?
Do you need to go on holiday abroad or would staying in your home country suffice?
The great thing about alternatives is that they provide nearly all the services you want while saving you a lot of money. For instance, you can still relax on a domestic holiday, even if it doesn’t quite have the wonder of going abroad.