Saving and Investing
Updated 2018
So, you want to go on a New Year’s ski trip. Or an all-inclusive holiday. Or maybe it’s time to replace the Civic or the futon.
Whatever big purchase you’re dreaming of, here are a few questions you should ask yourself now to prevent post-purchase regrets (and debt stress) later.
1. One year from now, will I be glad I bought this?
Will your future self pat you on the back every time you turn the key in your new Jetta? Or will the car payments, insurance and maintenance bills be a 3,000-pound weight on your shoulders? Picture your life a year from now and ask yourself if this purchase still feels right.
2. Would a cheaper alternative, or a small fix, make me almost as happy?
Your futon is ugly—that’s a fact. But if it’s still relatively comfortable, maybe a sheet and a couple of nice pillows would stop you from having to recoil in horror everytime you look at it - at least until Ikea’s next big living room sale.
3. How much will I have to borrow to buy it?
If you need to borrow money, your purchase ends up costing more, thanks to those pesky interest fees. Using some savings and cutting back on other spending can lower the amount you need to borrow and make this decision a bit simpler.
4. And where will I borrow it from?
How you borrow may dictate how MUCH you should borrow. Credit cards are convenient, but most come with very high interest rates. Without a plan for paying it off, credit card debt can weigh on you for years. For longer-term borrowing, consider applying for a line of credit, which typically comes with a much lower rate.
5. Does this reflect my priorities and my values?
The money you spend should reflect what’s important to you. Having food to eat and a warm place to sleep are important to everyone, so it makes sense that you probably spend most of your money on food and rent. But what about the rest? If wanderlust defines you, a big trip should be a priority purchase. Consider yourself an environmentalist? Maybe a new bike would be better than a new car.
The line between “need” and “want” can often be blurry. Answering these questions before you invest your money in something big can help you feel more confident that you made a good decision - and prevent buyers remorse down the line.