We all purchase for different reasons. Sometimes it’s out of pure necessity, like needing to replace a broken appliance. Other times, we purchase out of pure desire.
Regardless of the reason, no purchase should be made without thinking through it.
By thinking through the details of your purchase from the initial desire to the actual transaction, you can minimize the risk of regretting it and being financially overstretched.
If you want to have full control of your money, you have to tell it what to do, not the other way around.
So, before you make your next purchase, follow these 3 steps and you’ll be on your way to no longer being at the mercy of your money.
Prioritize Your Wants
Understanding your needs vs your wants is a crucial part of controlling your money. It’s something most people feel they grasp, but too often talk of “needing” quite a lot.
This happens when we get a bit too comfortable.
As we get used to our current standard of living, it can be easy to become so used to certain items or experiences that we start believing they are actual needs.
This especially comes into play when making a major purchase like a car, but can also apply to just about anything.
Before you buy anything, you should carefully consider your options and the impact on your finances.
Just to make sure we are on the same page, consider this:
- Understand what a true need is: A need is a true-life necessity. You need food, you need a roof over your head, you need clothes on your back, and likely need transportation of some sort.
- Differentiate between a want: You may need transportation, but that doesn’t mean you need a fully loaded Mercedes. That would be a want, and there’s nothing wrong with that. Well, assuming you can pay for it.
- Set priorities: There’s nothing wrong with wanting anything, just determine what is more important to you. In sticking with the car theme, what’s most important to you in a car? Navigation? Ventilated seats? An amazing sound system? Learn to prioritize what’s most important to you and the financial impact.
- Don’t forget opportunity costs: An opportunity cost is the value of the next best alternative that must be forgone. Satisfying a want may come at the cost of not being able to afford another. You will have to determine if the trade-off is worth it.
Conduct Preshopping Research
Two words that can save you big bucks and lots of regret: Google it.
Seriously, we have so many resources available to us these days, there’s no excuse not to research before you buy.
Checking out Consumer reports, reading reviews, and getting recommendations from friends and family is so simple, yet so effective.
Being informed prior to buying is also what makes the difference between being a smart consumer, and a sucker.
Don’t be a sucker, ok?
Why your research is crucial:
- You develop a reliable anchored price: A price anchor is an idea of what you expect to pay. Anchors can be based on your previous experience, an arbitrary number based on your perceived value, or actual research. It’s always better to have an estimate based on actual research, not what you hope to pay.
- You protect yourself against getting screwed: Can you imagine paying $20 for a $3 gallon of milk all because you didn’t know better? Seems crazy, right? Well, when you don’t do your research, you leave yourself susceptible to getting screwed like that. Anyone can charge you anything if you aren’t aware.
- Helps you to plan: Information is key to planning for the purchase. The more information you have, the better you can plan and save towards it. This is especially true if you need to set a monthly savings goal in order to reach your target.
Find Room In Your Budget
The number one question we ask ourselves when faced with making a purchase is “can I afford it?”
The best way to answer that is knowing exactly what your budget allows for, and where you have room to adjust.
- Do you even have a budget?: A budget is simply a tool that helps you organize your cash flow. Additionally, it gives you permission to spend. You can build a budget that helps you reach your goals while enjoying what brings your satisfaction. Learn how to build one with this post.
- Know what you can afford: Once you’ve created a budget, you should know exactly how much money you have left to play with. After your goals and necessities are funded, how you spend the rest (discretionary income) is up to you.
- Determine what you’re willing to spend: Just because you have the money available, doesn’t mean that’s what you should spend. See how the purchase relates to your overall spending plan. Would it eat up all of your discretionary income, or can you comfortably afford it? Don’t overstretch yourself.