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How do you handle large purchases? Large purchases has always been my weakness. In the past I’d do a great job tightening up my spending only to have a large purchase fly through and blow my budget to smithereens. These large purchases would often cause my previous attempts at budgeting my money to fail. I realize now that managing these large purchases are extremely important.
Having a system to work through the decision process guarantees that your purchase will be well thought out and provide you with the maximum possible value. Here are some tips to use before making a large purchase.
Make the Purchase Mentally Before Anything Else
A recent CNN article featured different families that are extreme savers. CNN interviewed each of these families to gain insight to their secrets of frugality. I found this statement to be especially insightful: “I usually mentally buy something before I actually do it.” But what does it mean mean to “mentally buy” something? I can’t speak for the family, but here’s what it means to me. It means the purchase is completely intentional. It isn’t just an impulse purchase that happened. Even more important than being intentional is that it’s planned. So before spending a cent towards a large purchase, think about it. Think long and carefully, and make sure that it truly is intentional.
Can You Borrow from a Friend?
Another great way to save a ton of money on large purchases is to borrow it from your friends instead. The best example are tools. Tools are extremely expensive given how seldom you use them. About a week ago my girlfriend and I were trying to install some blinds that we purchased. Rather than going down to home depot and spending a bunch of money on a tool set that no doubt wouldn’t be used for a while, we borrowed a set from a friend. Not only was our friend happy that his tool set was useful and helped us out, but it also saved us a bunch of money!
Are You at the Right Price Point?
One of the most difficult things to decide before making a large purchase is the price point. The best example of this are new computers. Companies make it incredibly difficult to know “how much computer” you really need with their long lists of options. Be aware that price anchoring can happen. Don’t be afraid to spend the extra money if it really affects the level of quality in a way that matters to you. For example, getting a slightly faster computer probably isn’t worth an extra $200. But getting higher quality cookware could be a wise move if it means that you won’t need to replace it for years to come.
Pay for It in Cash
With my student loans still hanging over my head, I know the detrimental effects of debt. The next time that I will go into debt is when I purchase a home, and even then I will do everything I can to pay off the mortgage as soon as possible. If you can avoid it, make the purchase in cash. If you don’t have the cash, wait. Being patient is great for two reasons. First it gives you the time the accumulate the money to avoid debt. But more importantly, it gives you the opportunity to change your mind about the purchase.
This is exactly what I did when I was considering buying an digital SLR. I’ve always had an interest in photography, but as many of you may know, it isn’t exactly a cheap hobby. So I told myself, “If you can set aside enough of your ‘fun’ money to purchase the camera, then you can do it.” I started working towards the goal, but along the way I realized that there were other things I wanted more, and I decided to hold off on the purchase.
What Matters
These types of budget busters are extremely dangerous, but if you’re aware of them, then you have a much better chance of protecting yourself. What helps is that unlike smaller purchases, you only have to dissuade yourself from making a few large purchases for it to make a big difference in your wealth. So remember to consider carefully the next time you think about making a large purchase. Do you have any additional tips that you use to prevent these budget busters.
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