Whether you’re planning to move because your lease is up, are ready to upgrade your car, or your trusted laptop has finally given out on you, making a big purchase can be daunting. In addition to the general stress associated with spending a lot of money, there’s also the limitations of your budget to consider. If you’re like me, you can probably use some pointers to help you put yourself in the best possible financial position.
Here are a few of my top recommendations for things you can do to help you prepare for making a major purchase, whatever it may be.
#1: Weigh the pros and cons
Before you officially decide you’re going to move forward with making the purchase, make sure it’s absolutely necessary. One of the most important practices of living frugally is avoiding impulse buys and making unnecessary purchases that have the power to completely derail your financial progress.
To make sure you come to the right decision for your circumstances, I recommend making a pros and cons list. Seeing it all written down on paper makes it much easier to think through the decision process reasonably.
#2: Make a budget
So, you’ve decided you’re going to move forward with your purchase but now you need to figure out how much you’re willing to spend on it. While you might want to splurge and buy yourself the top-of-the-line option, that might not be realistic based on your financial situation.
That’s why the next thing on your to-do list is making a budget or reviewing your current budget to ensure that you can actually afford to buy it.
If you can’t afford it based on your income, should you consider financing? While you might automatically assume you can’t qualify for financing or shouldn’t, look at your options. For example, if you’re planning on buying a new home in The Golden State, stated income loans California are a great solution for self-employed individuals who might not usually be the ideal candidate for a traditional home loan.
#3: Check your credit score
As you’re likely aware, your credit score can have a major impact on how much something can cost you. For instance, if you’re planning to finance your purchase (or a portion of it). That’s because the higher your credit score, the lower your interest rate. And the interest rates are what can really impact how much you end up spending on your purchase. Over several years, a high interest rate can add thousands to your bill.
Once you’ve checked your credit score, you need to make a choice if it’s low. Will you postpone your purchase in hopes of raising your credit score enough to qualify for better terms, or will you move forward with buying the item and pay the extra interest? Keep in mind that paying more interest will mean higher monthly payments too, so it’s important to factor that into your monthly budget for the term of the loan.
#4: Do your research
Now that you know how much you can spend and whether or not financing is an option, you’re ready to do some shopping—but it’s not time to buy just yet. The purpose of this step is to help you browse your options that are in your price range. You’d be surprised what kind of opportunities to save you can uncover by doing some research first.
You might find a special deal on your preferred brand or a higher-end model than you originally thought you’d be able to afford. While this is true with pretty much everything we buy, it’s especially important with big ticket items like technology, furniture, and cars.
The opposite might apply as well. You might actually find that your estimates were wrong and what you want costs more than you expected. In this case, you might have to substitute it for a lower-cost alternative. For example, if you had your sights set on getting a new car but it simply isn’t your budget, you might have to settle for a used car.
While these big financial decisions are always difficult, and even risky, to make, following these steps should help you come to the most financially sound purchase decision. Remember, personal financial decisions should always be made carefully to keep you on your feet.
