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5 questions to ask before making any big purchase
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It's natural to want to do everything we can for our loved ones—and that can often involve spending money. But no matter how good your intentions, there are always financial realities.
Research by the Pew Charitable Trusts shows the majority of American households have less than one month of income in readily accessible savings. This lack of emergency money means every purchase has to be considered for its potential long-term impact.
So whether you're a family on a budget or a young couple only responsible for yourselves, thinking through every financial decision is important. Here are five questions to ask before making your next big purchase:
1. How will it impact those around me?
When making a big purchase for a relative, or the whole family, it's worth involving them in the process. You all have different perspectives and share the same pool of money, so it's only fair that everyone's opinion is considered.
Ask why this item is important, and use the answers to develop a clear idea of who it will benefit, and why. If the family member is too young or old to help inform that decision, then do your best to understand what their point of view would be on the topic.
2. Is it a replacement, or something new?
If you're buying something new, ask yourself: Do I really need this? You've gone this long without it, so ask yourself why now is the right time for the purchase. Identifying the real motivation for buying something—whether that's social pressure, a personal pick-me-up, or something else—will help you make a smarter decision.
If you're considering a replacement item, look at whether you really need it now. If the answer is yes, then consider spending more on a quality product that will last longer.
3. How much (time) is it worth?
It's far easier to spend money than earn it. Think about this the next time you're ready to click the "buy" button, or swipe your credit card. Ask yourself how many hours of pay the purchase will cost you. If the use of your time can be justified, then it's a sign of a worthwhile investment.
Also consider alternative uses for that money. If there are more beneficial ways you could be spending it, then you know what should be done.
4. What's happened with past purchases?
If you have a good track record of making big purchases, without regret or lasting credit card debt, then you have reason to be confident in your judgment. If not, think back to your last big purchase and learn from your mistake.
It's very easy to make the same mistake again—that's how they become bad habits. If you have feelings of guilt or uncertainty at the cash register, think it over for 24 hours.
5. Is this the best deal?
This is a question for you as much as for the salesperson you're dealing with. You should compare quotes and check other outlets for the best price.
Ask the salesperson if they can give you a better deal. It can help to shop around the end of the month or quarter when there are sales targets to be met and there may be more flexibility.
Asking these questions before making a big purchase will put you in a better position to give your family every opportunity without walking a financial tightrope.
Please read soccer star Alex Morgan’s letter about how her family invested in her future.
Alex Brophy is a former finance analyst who has written for Yahoo, Business Insider, and News Corp. publications.