For most of us, making large purchases is a luxurious rarity. We purchase things like cars and pianos so seldom that when the next big investment rolls around, we are hardly prepared for it. Indeed, some of us become so enamored with the intoxicating effect of owning bigger and better things that we instead of thinking we mindlessly purchase and consume. Of course, putting lots of hard-earned money into something that will benefit you in various ways is an important part of being human.
Still, here are a few things to consider before making that next purchase:
1. How many people will this purchase benefit?
Especially if you have a family, making large purchases are better justified if you can see clearly how they benefit with whom you are close. For example, if you purchase a car, many of your family members could stand to benefit. On the other hand, however, if you are interested in purchasing a horse and everyone in your family has no interest in owning one, you will accrue less of an overall benefit from your big purchase.
2. What does the item cost to maintain over the long term?
While an actual item may be affordable, it is very important to research anything related to this item to get a better idea about your investment. To use the horse example again, a horse may cost a set amount; perhaps you even got a great deal on it. However, the cost of maintaining a horse—buying or renting a stable, paying for vet bills, and paying for food and other related costs. When maintenance is factored into your purchase, it might not be such a good financial decision after all.
3. Is it something whose value could possible appreciate over time?
When you make a big purchase you should always have a long-term plan in mind. Usually one purchases big items with the intention of eventually selling the item again after several years. Check the resale value of your item to see if you could possibly stand to make money from your purchase several years down the line.
4. Have you adequately planned for paying for the item?
Many people make the mistake of purchasing big items using loans or interest-addled payment plans, simply because they believe this is how all people are able to afford to buy anything. At the same time, however, this is not necessarily true, and digging yourself further into debt just to satisfy your desire to buy something will make you regret your decision later. As such, you should, in most cases, save for your item over a long period of time. This way, you will appreciate the work it took to be able to buy the item much more than simply buying the item on credit.
5. How will this purchase affect your overall budget? What will you have to give up?
You should also investigate how buying the item will affect other areas of your financial life. As the saying goes, everything that goes up, must come down. In other words, the newfound pleasure accrued from your new item will mean that you will have to make some sort of sacrifice elsewhere. If you are willing to make this sacrifice, then you are on the track to making a wise purchasing decision.
Perhaps the most important consideration, the one that essentially undergirds all financial decisions, is thinking about whether or not you really need the item. Of course, it is fine to indulge every once in a while, but conducting thorough research and mulling over your purchase before deciding is absolutely essential.
This is a guest post by Susan Wells. Susan is from cheap insurance quotes, she writes on topics including health/car/life insurance, mortgage, real estate.