With the holiday bonus season already upon us, you may have set your sights set on a certain big-ticket item. In fact, the thing that you’re thinking of getting might have a price tag that’s so high it might take up your entire bonus or even more.
Well, there’s nothing wrong with buying expensive items per se, but keep in mind that there are things for you to remember before you commit to the purchase. Read on for questions you should answer before you make that decision.
1. Is it a necessary purchase?
Having new things is nice, but big-ticket purchases shouldn’t be made on the basis of niceness alone. Since you’ll be spending a lot of money, you should make sure that the thing that you’re buying will be of high utility.
For example, if you’re thinking of getting a house so you no longer have to pay rent, or a car to help you deliver items for your business instead of having to rely on third-party services, these could be considered necessary.
But what if you’re considering a new smartphone when your current one is still working fine, or a really pricey pair of shoes just because they would be perfect with your formal outfit? Such purchases can’t really be considered necessary, and so shouldn’t be high on your spending list.
While it can be less fun to always have to look at the utility of the item, doing this will help you make the most of your money.
Anyway, once you’re done covering your essentials, you can treat yourself to an occasional splurge. After all, budgeting for wants isn’t always a bad thing, especially if they’re not that costly.
2. Can you afford it?
If you’ve determined that the purchase is indeed essential, you’ll then have to see if you can actually afford it. It’s one thing that you have enough cash to purchase the item, but it’s a totally different story if you consider your other expenses.
If you’ve saved up and/or invested for it, then that’s great. If not, you’ll have the option of taking out a loan for the additional amount.
Remember that this isn’t a step that should be taken lightly. Borrowing money has its own cost, after all, and you’ll need to factor the payments into your monthly budget to make sure that you can cover them without a lot of additional stress.
You probably already have an emergency fund, otherwise you wouldn’t even be contemplating a big-ticket purchase. Still, your available lines of credit should be kept as back-up options in case you unexpectedly need more cash than your fund can handle.
Unnecessary borrowing reduces the amount of money that you can get, and so it would be better for you to avoid doing that, just in case.
3. Can you find a less-expensive alternative?
Before pulling the trigger on that big-ticket purchase, consider your alternatives that don’t cost as much. If you can find an option that delivers nearly the same results, you may want to pick that one instead.
Of course, cheaper isn’t necessarily better, and so you’ll have to look at the bigger picture. For example, all other things being constant, between an expensive car with a 5-year warranty and a less-costly one that only has a 3-year warranty, the former might end up being a better deal overall.
What’s important is that the substitute should be able to fully perform the functions that make the item essential. If you have a cookie business, choosing a cheaper oven that has a smaller capacity than a pricier option means that you’ll actually be sacrificing output capability, which means less potential to make money.
At the end of the day, the decision on whether to make this big-ticket purchase lies on your shoulders alone. However, you’re more likely to have a better experience if you took the time to answer these essential questions and allow them to guide your choice.