By Karen MacKenzie
You feel conflicted. You’ve seen something you want to purchase. But the cost pushes you into an uncomfortable battle zone between emotion and logic, with you in the middle.
You want to make the best decision possible. And large purchase decisions can cause higher amounts of regret, so it’s smart to think it through first.
The best way to make a well-thought-out decision is to ask yourself a series of questions and answer them carefully.
First, let’s clarify one thing.
What is a large purchase?
There is no precise definition; it depends on your income and your budget. It also depends on your comfort level with spending money. You may consider anything over $100 to be a large purchase, no matter how much money you make. Or you may set the threshold at $1,000 or more.
The big purchases in life, such as housing and transportation, have an outsized impact on your finances. In fact, the decisions you make in just these two categories can determine what’s left in your budget for everything else. So be especially careful when making decisions in these two areas.
Ok, let’s get started.
Perform a gut-check and answer these questions honestly
1. Is this a real need? Or is it a want?
A need is something that you can’t do without, at least by today’s standards. Wants are optional. The line between needs and wants gets blurred by emotion, but get as clear as possible on what exactly you need. Then realize that anything beyond that is probably a want.
Knowing the difference between the two helps you set priorities.
Also, if this purchase is to replace an existing older item; does it need to be replaced? Or do you just want to replace it? Could the older item be either repaired or upgraded instead?
2. Can you wait for a minimum of 24 – 48 hours to see if the desire lessens or even passes?
The more it costs, the longer you should wait. For smaller items, if you wait a day or two, you may find that the desire to purchase it passes. For larger items, try to wait even longer, weeks, or maybe even a month. If you find that the desire is still strong after waiting a month, then you know this item is meaningful to you.
Urgency is a marketer’s best friend, but your wallet’s enemy. “Limited time” or “today only” deals are designed to separate you from your money; not to help you make smart decisions.
3. Can you borrow or rent it instead of purchasing it?
If this is something that you only need for a limited time, or for one project, is it possible to rent it? Or even better, borrow it?
Especially for recreational items, can you rent one to see if you like the activity first?
For example, my husband and I bought pricey mountain bicycles, thinking we’d do a lot of trail riding. But we didn’t enjoy it as much as we thought we would; now they are gathering dust hanging in the garage.
Renting or borrowing an item to try before you buy can save you both money and regret.
4. Can you pay cash?
You already know this, but I have to say it. Going into debt means you can’t afford it, even if you can afford the payments. Exceptions to this are houses and vehicles, which most people don’t have the cash for. In these cases, consider dialing down wants to lower the cost.
Unless you get a zero-interest loan, if you have to make payments on it, you will pay extra for interest. And the excitement of the purchase will wear off well before you’re done making those payments. Emotion will fade, but the payments will remain as iron-clad chains on your finances.
If you don’t have the cash right now, could you save for it? It will make the purchase so much sweeter knowing that you own it outright.
5. If you decide to make payments, how will this impact your budget considering the other financial obligations you already have?
Look at the new payment compared to your current expenses. Confirm that this additional payment won’t reduce your ability to pay your existing obligations.
- Will it make it more challenging to pay your rent or your mortgage payment each month?
- Will this mean paying less towards expensive consumer debt like a balance on your credit cards?
- Will this hurt your ability to pay down student loans?
Make sure that the additional payments are easily covered by your income. Also briefly consider what might happen if you lose your job or your source of income. Are you willing to take on this new debt in light of the pain it would cause in case of a job loss?
6. How many hours will you need to work to pay for this item?
Calculate your hourly rate. Make it simple; ignore taxes and what it costs you to earn that money (commuting costs, work clothes, lunches, etc.). If you subtracted those costs, you’d get closer to your real hourly rate, but the purpose here is to get a rough idea.
If you are making $200-a-month payments and earning $20 hour, that monthly payment will equal 10 hours of your life every month for this item. Is it worth it?
If you pay cash, a $1,600 item at $20 hour takes 80 hours to earn. Are two weeks of work worth the potential benefit of this item?
Make sure you think it is worth it first before proceeding.
7. Besides time, what else are you giving up by purchasing this item; where else could you have spent the money?
Since you’ve made it this far, you’ve determined it is worth the cost. But to prevent regret later, think through all the alternative uses of the money. What else could you buy with this money? Is this one of your top priorities?
For example, will the new payments on this item mean less money for family vacations? Is your family ok with this? Do they understand the trade-off?
Or if you spend the savings on a new motorcycle, are you ok not spending that money on upgrading the house?
You want to make sure that this is the best use of your money right now.
8. What other costs are associated with this purchase?
For some items, the purchase price is only the beginning. Think about accessories you’ll want and/or need for this item and any other additional expenses.
Look into these extras before you buy to prevent unpleasant surprises.
An extreme example is a motorhome/RV. Here are some of the costs beyond the purchase price:
- Interest costs if you need to make payments.
- Maintenance costs– both ongoing yearly maintenance and one-time costs to fix what breaks.
- Insurance costs– for liability and comprehensive coverage.
- Accessories – there are entire stores full of accessories for an RV. For many large purchases, you’ll find yourself looking for related accessories.
- Other miscellaneous costs- costs such as storage fees if you can’t store it on your property and yearly town property taxes.
Steps to justify an expensive purchase and not kick yourself for it later
Justifying an expensive purchase is all about making sure that the value you’ll receive is worth the price you’ll pay.
Buying something in an emotional haze, then realizing later that it wasn’t the best use of your money or even worse, that you couldn’t really afford it, is a significant cause of regret.
But even when you can easily afford something, it isn’t necessarily a green light to spend.
Read on for more questions.
9. What regrets do you have regarding past large purchases, and what can you do differently to avoid them this time?
Think through past purchase mistakes to prevent making them again.
As an example, a mistake I’ve made in the past is overbuying appliance features. I didn’t think about what I really needed first before shopping. It’s easy to climb a price ladder thinking that for just $50 or $100 more, you can have 12 different features instead of 6. But if you never use those extras, it’s just a waste of money.
Remembering that lesson saves me money every time I need to replace an appliance.
10. What information do you need to feel confident about a purchase?
Steps to research and plan a big purchase:
- Examine the reason for your purchase; what are you really looking for? Also, ask how it will be used. This will help you determine must-have versus want-to-have features.
- Comparison shop between alternatives. Eliminate anything that doesn’t have your must-have features, even if it costs less. Checking the item’s features will help with this first step. Don’t scrimp here, once you determine must-have features, then buying something without them is a recipe for buyer’s remorse.
- Consider quality. Is it worth it to purchase a higher-quality, but more expensive item if it may last longer? You may find that you can save money by buying a lower-quality version, but will you enjoy it as much? Will it wear out or break down faster? Quality items that last longer are often a much better value.
- If you keep the pros and cons to each option in your head as you research them, it makes it tough to make a decision. Help yourself out by writing it all down and then ranking the options by their pros and cons.
- Create a spreadsheet or a list of the top 3 or 4 options.
- List the pros and cons for each option.
- Give the pros and cons a rank of 1-10 according to how important it is to you.
- Total each pro and each con.
- Look for the options with the highest scores for pros and the lowest scores for cons. You’ll need this list for the next step.
Ok, so now you have your top options selected and ranked, and you’re ready to go shopping. Just a few more questions to help you make the best purchase.
11. Can you buy it used?
You can save significant amounts of money by purchasing an item used. It all depends on how rapidly the value of the item depreciates and the market for it.
Vehicles are the best example of this. Per the used car website Carfax, “According to current depreciation rates, the value of a new vehicle can drop by more than 20 percent after the first 12 months of ownership.”
To get the best deal on used items, you need to be patient and wait for a good deal to appear. Obviously, if you need something right away, you may need to skip this step.
Also, be careful as some items are just not worth buying used. Do a quick internet search to check first.
12. Considering both price and service, where is the best place to purchase this?
You already know that prices vary and that it pays to shop around. But consider factors beyond price, like service policies or the level of customer support. Make sure you get the best value you can, which may be a mix of both price and service.
If support is important to your purchase, test the level of customer service a company provides BEFORE you buy. When you send them an email, do they answer within 24 hours? If you call them, do they pick up the phone? Or if you leave a message, do they return your call?
Also, some shops will give a one-time discount on accessories. If you need accessories to go with the item, a 10% discount could make it worth it to buy at one store versus another. It pays to take the time to dig into the details on this.
13. What if you change your mind? Can you return it?
Once you’ve taken the time to run through all these questions, you are not likely to change your mind. But you do want to look into the return policy before you purchase. If there are two stores with the same price on an item, a more lenient return policy could help you decide which store to purchase from.
If you can’t return it, how much of a loss will you have to take if you sell it used? Is this something that you can even sell used?
14. When is the best time to purchase this? When might it go on sale?
Some products go on sale at different times of the year. Look online for “best time to buy a (product name).” Of course, if you need it right now, like replacing a washing machine, you don’t have this option.
Assuming that you don’t “need” the new features in the latest models, buying last year’s model can save you money. Many times stores want to clear out older inventory and are willing to discount. Find out when new models are released and plan your shopping in that month or even the month before.
All that’s left is your decision
Congratulations! By answering these questions, you should have all the information you need to make a smart decision. You can go from feeling conflicted to feeling confident; after all, you’ve taken the time to think it through.
If you decided to pass on the purchase, you’ve just avoided a costly financial mistake. There will always be more opportunities to buy things.
If you’ve decided that it’s a yes, you can enjoy a guilt-free purchase. After all, you made the decision thoughtfully and carefully and balanced both emotion and logic.
Either way, you’ve done the work to avoid the gut-churning pain of regret that is so common when it comes to large purchase decisions.