We all make our share of major purchases in life, whether it's buying new appliances or upgrading our favorite gadgets. But spending money always comes with an opportunity cost, and so big purchases in particular are ones that need to be carefully thought through. If you're planning a large purchase, here are a few key things to do before handing over your money.
1. Check your bank accounts
Unless you're talking about a purchase that's truly critical -- say, a new fridge to replace one that just broke -- it never makes sense to rack up debt in the course of buying something. So before you make a major purchase, take a look at your checking and savings accounts and make sure there's enough money in there to pay for the item in question. If there isn't, and it's not an emergency, you're better off waiting until you have the cash, because if you charge that purchase and wind up paying it off over a lengthy period of time, you'll throw away money on interest in the process.
2. Review your upcoming bills
Maybe you're looking at a $1,000 purchase, and you have the money in your bank account to cover it at present. But what if another major bill comes due around the same time? Can you cover that $1,000 plus another large chunk? Before you make a big purchase, take a look at your upcoming expenses and make sure nothing colossal is looming. If it's a month in which your annual life insurance premium or quarterly property tax bill is due, consider holding off to ensure that you can manage those non-negotiable expenses first.
3. Think about whether you have a more pressing use for that money
Maybe you have the money to pay for, say, a $2,000 couch that will be far more pleasant to sit on than the torn-up monstrosity occupying precious real estate in your living room. Be that as it may, you should still make sure you don't need that money for a more important purpose, like making a major home repair or paying off a chunk of costly credit card debt. The last thing you want to do is plunk down a pile of cash and regret that decision later on.
4. Wait 24 hours
Major purchases are often the result of temptation more so than forethought and planning. In fact, 5 out of every 6 Americans fall victim to impulse purchases, and 20% have spent $1,000 or more on an impulse buy in the past. That's why it's always smart to institute the 24-hour rule when the idea to buy something creeps into your head.
Rather than make that purchase right away, even after having taken the above steps, give yourself a solid 24 hours to think it over. In doing so, you may come to realize that the item in question isn't as important to you as you thought it was. Of course, you might emerge 24 hours later even more intent on buying whatever it is you were pining for, and that's OK. The point is to give yourself enough time to see whether that purchase is truly worthwhile.
We all know that money doesn't grow on trees, and that it's best to be mindful of how we spend our earnings. The next time you're tempted to make a big purchase, be sure to go through the above steps first. With any luck, they'll lead you to what's ultimately the right decision.