Should you buy? Gut check before making a big purchase
Read: 3 minutes
Whether you're buying a new car or planning a relaxing vacation, it's only natural to want the best things in life. Unfortunately, your eye for the finer things can sometimes be way out of your budget.
"Thanks to the constant advertising and technology, it's more important and difficult than ever to think through our big purchases," says Tyler Furger, CFP and managing partner at Illumine Financial. "We often feel pressured to make big purchases we do not need because we're afraid of missing out."
But taking the time to think through your next big purchase can pay off. The key is asking yourself five important questions:
1. Do I really want it?
According to Furger, big-ticket purchases are more often impulse buys rather than thoughtful, planned investments. So instead of asking yourself whether or not you can afford an item, ask yourself if you really want it.
"The first question gives you too much room to rationalize, especially in the world of interest-free financing," he says.
What about it is important to you? Will you change your mind on those priorities? Would you rather have this thing or the next most important thing on your list?
2. How much (time) is it worth?
It's far easier to spend money than earn it. Think about this the next time you're ready to click the “buy" button or swipe your credit card. Ask yourself how many hours of pay the purchase will cost you. If the use of your time can be justified, then it's a sign of a worthwhile investment.
3. Can I afford it if there's an emergency?
Let's face it: Nobody thinks about getting sick or laid off when they're buying a big-ticket item, but a financial emergency could arise at any given time.
"People get sick, jobs are moved overseas, or your family grows," Furger says. "The worst thing we could do is to think we will make more money every year and never face financial hardship."
To answer this question, check your emergency fund. Do you have enough money to pay your bills if you experience an unexpected emergency? If not, you might want to rethink that shiny red convertible.
4. What happened with my past purchases?
If you have a history of making big purchases without regret or lasting credit card debt, you have reason to be confident in your judgment. If not, think back to your last big purchase and learn from your mistake.
It's very easy to make the same mistake again—that's how they become bad habits. If you feel guilty or uncertain at the cash register, think it over for 24 hours.
5. Is this the best deal?
This is a question for you as much as for the salesperson you're dealing with. You should compare quotes and check other outlets for the best price.
"I had a client who decided they needed to buy a new house," Furger says. "After asking about alternatives it turned out there was a $350k house that would give them the same amenities as a $500k house."
Take the time to do your research—both on your own spending habits and on your purchases. That way, regardless of whether or not you buy the pair of boots or vintage guitar that's caught your eye, you'll know that it's the right purchase for the long run—not just for right now.
Alex Brophy is a former finance analyst who has written for Yahoo, Business Insider, and News Corp. publications.