If you have not experienced the dreaded moment when you realize that you are going to have to make a big purchase because of a computer, car or a home appliance breaking down then trust me – it is only a matter of time because it is just part of life. Things break and sometimes you just need a pricey item that you did not previously own. The goal of this blog is to help coach you through how to handle these situations in the most financially feasible way possible.
1) If it is broke, can it be fixed?
Often times when an old car breaks down or the computer fails the first assumption tends to be we need to go buy a new one. While that may end up being the case it is not always and many times the best option is truly to get the broken item fixed -especially if money is tight. Take for example when your car breaks down. It can be so frustrating! Especially when the mechanic comes back with a price to fix it exceeding $1,000. Our mind immediately goes to the reasoning that people around us have used in the past when facing the same situation. You hear them in your head saying, “The car is old already, it is not worth a whole lot, why would I put $1000 into it when I could go buy something much newer?” Then they end up purchasing a car and either spend way more cash than the $1000 on repairs or take a loan out to purchase the car that ends up costing them more $1000 in the first 4 or 5 months of paying back the loan. Making a new purchase just because what we have is old and in need of repair is not always the best option as I have hopefully convincingly presented to you, the reader.
Consider if you did just pay the $1000 to fix your car and it gave you another 3 or 4 quality years of life. In my book, that would be worth it especially if that kept me from having to finance a new car before I was ready to make that purchase. If you do just fix the car it also gives you the time to plan financially and save for the purchase instead of making a big financial move on the whim when you were not planning to do so. Not to mention it would save you a ton of money of the 3 or 4 remaining years of the car’s life. This same principle could be used with home appliances, computers and etc.
I recognize that sometimes there just is no shot at saving the big item and you will have to make a big purchase. The rest of this blog post focuses on the steps to take to make financially feasible and responsible purchases of big items.
2) You’ve determined that you are going to buy. Where to start?
When you hear someone say you should start your search for the big item by determining the monthly payment amount you can make on a loan for the big purchase item or how much cash you are willing to drop on the item you response might be “duh, that is obvious”. Well, yes and no. I would argue that while it might be common information it is not always practiced. Even when it is someone’s first step in making a purchase a good sales person looking to earn some commission can give a pretty convincing argument for why you should spend just a little bit more and before you know it you’ve made a purchase costing you way more than you initially planned.
If you are financing the purchase it is important to take a good look at your written budget and determine how much you can afford to pay each month. Make sure that the amount you determine does not stretch you so thin that it is possible certain months you will miss payments. If you do not have a written budget do not trust your mental math to make a financing decision. Write it out to make the decision – there is a good chance that if you don’t take time to write out your budget you will be sorry later. If you decide to pay in cash be sure to not completely exhaust your savings to the point where there is not any money in your emergency fund.
If you go the financing route once you have determined how much you can afford to pay monthly you are now ready to determine the maximum dollar amount the item can be that you plan to purchase. Make sure to consider tax and loan interest in this calculation especially if that purchase happens to be a car or a home. Also consider and determine if it is going to cause any other expenses to increase such as insurance, utilities, property tax or gas to name a few. Once you have finally determined the maximum amount the item can cost you are ready to start shopping!
3) Start with Research!
Do your own research. This is the only way that you can make sure that you have all the information you need to make the right purchase for the right price. If you have done your research it will save you a ton of time once you arrive at the car lot, the appliance store, or wherever you are making a purchase. Secondly, you will not have to rely on the knowledge of a sales person. Finally knowing your facts will help you know if the deal being offered to you is worth your money, if you need to go somewhere else to make your purchase, or if there is room to negotiate the price of the item down.
4) Do not settle.
If your research conclusively shows that you can get a better deal then do not settle and pay more for the item than what it is worth! Do not feel guilty for not buying an overpriced item because the company offered great customer service. You still have to do what is best for you financially and you have a dollar amount that you have to stick to! It is not personal, it is just business and the kind customer service folks will understand that – though you don’t even have to justify why you are not buying from them.
Making these kinds of financial decisions can be super tough. Here at the Center for Financial Success we are here to come alongside you during the decision-making process. If you would like to speak with one of our financial counselors visit our website, wku.edu/cfs and fill out our become a client form!