This article will be a short but sweet one, but don't let that fact that it's not 2,500 words turn you away, the advice is still solid! 🙂
Buying a car or investing in a new home? Make sure you think it through first.
Are you thinking about buying a new house or pulling out your plastic for that sports car your heart desires? Before you make the leap into another financial commitment, make sure you answer these questions first:
1) How much money do I have right now?
If this is not enough cash to finance the purchase, what other resources can I access? You don't want to get into a situation where if something goes wrong with your car's transmission and ends up costing $6,000 instead of $1,000 to fix, you can't afford a new transmission. If this is the case, you might want to rethink that purchase.
Having enough money upfront is critical to financing a major purchase. And the more time you have, the better your financial state will be in a few months or a year when making that big purchase. If you don't have adequate savings right now, you might want to wait until you do before buying anything on credit.
2) How much money will I have in two years?
Let's say you're thinking of buying a house right now and the only way you'll be able to do it is by taking out a 30-year mortgage on your life starting from today.
New home or not, ask yourself if you can really afford to make those monthly payments for three decades -- especially if interest rates increase over time.
And don't forget about maintenance costs either! It's true that there are some things you can pay cash for outright but even then, consider how much this purchase will affect your ability to save or invest elsewhere.
3) Will it affect my insurance premiums?
Make sure you consider the impact of heavy purchases on your life insurance needs.
For example, if you buy a boat, you'll probably need more coverage (and possibly even different types of policies). Buying that sports car will most likely mean higher collision and liability insurance premiums as well. You don't want to be caught without enough coverage if the unexpected happens.
4) What's my immediate plan for this money?
Is there anything else I can do with this cash besides purchasing something? If so, wait until another time to make the purchase or purchase it at a cheaper rate.
For example, if you're looking to buy a new car but can't find one that suits your needs for less than $25,000 and have only has $4,000 in cash on hand as a down payment, consider buying something older. Even though it's less flashy, it will still suit the purpose of getting from point A to B just as well as a brand-new model will.
5) Do I have any non-monetary costs associated with this purchase?
Purchasing an expensive item you don't need might not only alter your insurance policy, but it could also have other consequences you didn't anticipate.
You might be tempted to spend less time with family if you get wrapped up in the new luxury item. Plus, let's face it, some things are just more fun when you share them with friends -- so ask yourself if this purchase will change opportunities for socializing with others.
If you can't answer all of these questions and more, it might be time to hold off on that big purchase until you can.
Remember that money is powerful! It can increase your options or completely shut them down entirely. Before making a big decision about money, make sure you're thinking of the long-term consequences before acting on impulse.
As they say, think it through!