Hey big spender! Here’s how to be smart about making big purchases…

April 20th, 2017 Robin Skinner

Whether it’s a new car, kitchen appliance, a boat or a new home – making a big purchase can be a nerve-wracking experience. Are you paying a fair price? Are you choosing the right financing? Should you invest in the warranty? Questions abound and that’s no surprise – after all, no one wants to waste their hard-earned cash.

Don’t let buying a big-ticket item put you into a financial hole. Here are some tips to make sure you’re being smart about your big purchase.

Do you really need the item?

Is the purchase you want to make a “want” or a “need?” If it is a luxury purchase – or a “want” – then you should be sure that you can afford it and that you can pay cash for it.

If it is a true need, then you need to determine why you need it and when. For example, you may need a washing machine because yours is no longer working, but you do not really need the flat-screen television set. Determining if the purchase is a want or a need can help you to prioritize it in your budget.

What will you need to invest?

Determine a budget range that you’re willing to pay for your purchase. For example, if you’re on the hunt for a new car, spend some time doing online research to determine what make and model works best for you and what you can expect to pay for the car. This will give you a baseline amount for the purchase.

Do you have enough cash to pay for the item?

If you have enough in your savings account to pay cash for the item in question, then you’re in good shape. In other words, the purchase should not adversely affect your current monthly budget.

If you do not have cash for the item, then you need to consider other ways to make the purchase without adversely affecting your financial situation. For example, don’t buy a big-ticket item on credit if you know you can’t make monthly minimum payments.

Are you automating your savings?

If you don’t have the cash on hand to pay for your purchase, it’s time to start saving!

One smart way to do this is to automate your savings. By setting up automatic contributions to savings and investment accounts, you can literally put your savings on autopilot. Work with your bank to set up automatic transfers on a bi-weekly or monthly basis into your savings or investment accounts. Automating this process will ensure that you save on a consistent basis and aren’t tempted to spend the money on something else.

Start shopping for your loan.

If you know you’ll need a loan to cover at least part of your purchase – such as for a home – you’ll want to shop around for the best deal.

By comparing lenders and their loan products, not only will you be able to find the best deal, but you will also have a clear understanding of the total cost associated with the big purchase. Finally, you can ask your chosen lender to give you a pre-approval letter, which is pivotal in many real estate markets.

During this stage it’s important not to commit to a monthly payment that stretches your budget too thin and makes you uncomfortable.

Start shopping for your big purchase.

Before you sign on the dotted line, make sure you’ve done your due diligence in research. That means comparison shopping. Shop around and try to find the best deal. The key here is to look for the best overall value for your money.

Get help where you can.

To help you feel confident in your purchase, it’s a good idea to seek out professional guidance where possible. Find a lender you trust and rely on their expertise. Work with a licensed real estate agent if you’re buying a home. And if you’re purchasing a used car, ask a mechanic you trust to inspect the vehicle.

Don’t overlook the small stuff.

Once you’ve agreed on a price and set up financing, it can be tempting to fly through the final details. Don’t! Pay careful attention to the final paperwork, additional inspections and other details. You don’t want to be surprised when it comes to your first monthly payment.

When it comes to big purchases, it’s important to take your time. Don’t rush into things without having a full understanding of how the purchase will impact your budget. With good research and a well-developed financing plan you can be confident you’re not wasting your hard-earned money.

About the author

Robin Skinner is Second Vice President- Retail Managing Officer at MidWestOne Bank.

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