How to prepare for your next big purchase. Tips to manage your finances so you can afford expensive goods. If you are planning to spend a large amount of money, is always better to prepare your budget and know your finances well.
This is a guest post by Dhreen Tulsiani from The Money Casa.
Want that dream house of yours? Or that shiny new car? Or that expensive new iPhone? Make sure you’ve prepared yourself thoroughly before you decide to make that big purchase of yours.
What you classify as a “big purchase” entirely depends on your financial situation. However, no matter what your financial situation is, a “big purchase” will always feel big if you do not have the money to buy it right away.
Many people go ahead and buy the house of their dreams, the television with the latest technology or the luxurious new couch. If they do not have the money, they take up loans that they, in some cases, fail to pay off. They then find themselves in trouble.
For this reason, preparation is extremely important. No matter what you are thinking of buying, make sure that you are prepared.
So what steps do you need to take to prepare yourself for your upcoming big purchase? Here are 7 steps you need to take to make sure that you are fully prepared for this new big purchase:
1. Determine Your Financial Situation
The first and the most important step is to determine your financial situation. Are you going to be able to afford this new big purchase? This is a question that you have to seriously consider.
Oftentimes people overestimate what they can afford. They end up maximizing their credit card limits and they fall in debt. Not to mention the added stress level they face.
You can avoid all of these issues by determining your financial situation before you even get into such a big transaction.
You are the best judge for yourself. No one else can determine your financial situation for you. If you think you will have a hard time paying off your bills and putting food on your table, then you are better off forgoing this purchase.
2. Consider Your Purchase Decision
Consider your purchase decision by asking yourself several questions:
– Is the amount of money you are willing to spend worth the product you are purchasing?
– How long are you going to use the item for?
– Is this the right time for you to purchase this product?
– Do you even really need this item?
– Would the price of the product decrease over time?
– Are you going to pay in full or in installments?
– Are you going to buy it new or used?
When you have answered all such questions, you would be in a much better position to analyze if your purchase decision is financially viable.
3. Know The Exact Amount For Your Payments
If you are planning to finance your purchase, make sure to read through all the details. A lot of people make the mistake of jumping in on a big purchase without figuring out the exact amount they would have to pay initially as well as over the course of time.
They also fall into the trap of lower down-payment and higher instalments. What happens in such a situation is that they feel excited at the time of the purchase and they overlook the higher amounts of instalment they would have to pay on a regular basis.
Here’s a fact: there’s no escaping your payments. Once you make that purchase, you HAVE to make all your payments unless you want to sell it off.
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Since you have no option but to make all your payments, why not calculate them well in advance? By calculating the exact amounts, you would be able to better analyze your financial situation and make a decision if you can make all the required payments or not.
4. Create A Savings Goal
Once you have calculated and figured out the exact amounts you would have to pay, create a savings goal to save money for the entire purchase or for the down-payment as well as for at least 6 monthly payments.
When you have accomplished your savings goal and have saved enough money to cover your purchase or at least a few payments, you would have a peace of mind knowing that you have the money and that you will not be in trouble as soon as you make the purchase.
Savings are extremely important, especially when it comes to big purchases. Remember, no matter what, you absolutely CANNOT escape your instalment payments.
When it comes to instalments, regardless of whether or not you decide to use your savings to pay off your first few payments, you would always have this extra money that you can use as a cushion to fall on in unforeseen circumstances that may result from your big purchase.
In addition, your savings would also allow you to stay ahead of all your future loan payments.
5. Set A Timeline
You have finally created a savings goal. Fantastic! Now consider how long you would take to reach this savings goal of yours. Give yourself a reasonable amount of time to reach your savings goal.
Without setting a timeline, you could very easily get diverted and distracted by other things in life. By setting a timeline, you would make sure that you stay on track.
Moreover, with a timeline in place, you would stay motivated to achieve this goal of yours.
In addition, setting a timeline would also allow you to make your goal a priority along with all the other important financial obligations in your life.
6. Work On Your Savings Goal
After you have decided on your savings goal, make sure to work on it in a fashion similar to the way you would if you were making actual instalment payments.
How could you possibly do that? By automating deposits. Establish a separate savings account and automate your deposits to this account.
Banks and financial institutions automatically debit monthly payments from your bank account without you taking action. By automating your savings each month before your actual payments even begin, you would get a feel for how your life would be like if you were actually making the payments.
On the other hand, if you decide to manually deposit money into your savings account each month, you run into the risk of forgetting a deposit or missing the date of the deposit.
Automating your deposits is really the best way to reach your savings goal.
7. Reconsider Your Purchase Decision
You set a savings goal and you accomplished that goal and saved some money. Why would you even want to reconsider your purchase decision?
Honestly, I am not asking you to reconsider your purchase decision. This is something you would think of yourself after going through the efforts of setting aside some money each month to save for your new purchase.
When you were saving money, you assumed that you are making actual payments. You got to experience how life would be like if you were making actual payments.
If you found yourself having a hard time making ends meet when you were saving for your new big purchase, then you should definitely reconsider your purchase decision.
On the other hand, if setting aside money each month was rather easy for you, then you can, by all means, go ahead with your big purchase.
Saving money would actually allow you to understand your financial situation better.
Eventually, it is your decision if you want to go ahead with that big purchase or not. Having a strategy and taking the steps listed above would allow you to understand your financial situation better and make smarter financial decisions.