I Ask Myself These 4 Questions Before Any Large Purchase
Be more confident in your spending and saving
I consider myself a frugal person who’s always trying to become more financially literate.
I budget and track every dollar I earn and spend, invest and always look for the best options that fit me. This goes the same for both small and large purchases.
The term “large purchase” is subjective and relative to the buyer. But for me, a large purchase is anything $500 or higher.
When I’m thinking about spending that kind of money, I like to ask myself these 4 questions to help support my decision in one way or another.
How much money does this purchase “actually” cost?
Most purchases cost more than the asking price. I always consider this before spending my money.
For example, just because a car is for sale at $10,000 doesn’t mean it actually costs that amount. The actual price of that car is much higher depending on several variables.
You’ll have to pay sales tax, insurance and gas just to get it home after buying it. The actual cost of that $10,000 vehicle is now closer to $11,000.
If you’re financing the car, which I don’t advise, you’ll also be charged monthly interest on the vehicle.
All of these variables apply to way more purchases than just cars. Calculating the “actual” cost of a large purchase is crucial.
Will this purchase retain its value?
Not all large purchases retain their value, but most do.
A car is a well-known depreciating asset (except for these last few years). Even though a car will lose its value the moment it's purchased and driven off the lot, it’ll still retain some value.
Other larger purchases that retain value are real estate, higher education and even some luxury goods.
One example of a larger purchase that does not retain value is a couch. I recently bought a sectional for $1,600. Even if I wanted to sell it without sitting on it much, I’d likely only get a few hundred dollars back.
I still bought the cough because I needed it, but I knew once that money was spent, it was gone forever.
Do I really need this purchase?
This is a tricky question for me as it usually has a clear-cut or convoluted answer.
I personally need a couch, a car and a place to live. It’s subjective because not everyone needs those things, but I do. Those bigger purchases are easy and clear-cut because it’s obvious I need them.
But do I need new tires for my car right now? Or a dog?
My mechanic says I should get new tires soon. I trust him, but do I need to spend $500 right now?
My mental health says I really need a dog, but do I need to pay a breeder $1,000 or pay a shelter $500 to apply for one?
The question “Do I need this purchase?” is a harder one to answer but usually plays a large role in how I spend my money.
Can I earn rewards from this purchase?
I like to earn rewards for the things I buy.
I got $200 off the couch I bought in the previous example because I joined a free rewards program and that was my introduction bonus.
I earned free flights when booking a trip to Disney because I booked the hotel room and park tickets on a new credit card I just opened.
I’m thinking about purchasing a luxury timepiece soon (that I definitely don’t need) and I might open a credit card before I do. The purchase would get me 4 free nights at almost any Hilton hotel in the world.
Utilizing rewards programs, credit cards and coupons can lean in your favor if you understand how they work. Always think about what kind of rewards you can get back from larger purchases.
Conclusion
Asking myself these 4 questions has kept me out of a lot of financial trouble and grief. They nearly always result in making the best financial decision possible.
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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
