Nothing will put you in debt faster than making a big purchase that you cannot afford in the long run. With the current pandemic, rising gas prices and creeping inflation, nothing is guaranteed these days.
Now more than ever before, it’s easy to slip into massive debt. You could buy a car today and find yourself jobless tomorrow and unable to make the monthly payments.
You could rack up credit card debt thinking that you can always pay it off only to find your credit score ends up in the ‘bad’ range and now you can’t get a loan to buy a home.
The purchases you make today can affect your future in the long run. So, it’s crucial that you ask yourself the 5 questions below before committing yourself to any big purchase, especially if it’s an impulse purchase.
1. Will it change my life?
This question will highlight the importance of the purchase. If you’ve been renting for years and now you want to buy a home, then yes, the purchase will change your life. You’ll no longer need to rent and will actually be paying for an asset you own.
But what if it was a diamond bracelet that costs a few thousand dollars? Would it change your life? In most cases, the answer would be a resounding no. Sure, it would be nice and flashy… and you’d feel good. Not to mention the low key braggadocious aura that comes along with it.
But in terms of being life-changing, the bracelet ranks very low on the scale of importance. So decide wisely.
2. Will you go into debt buying it?
A celebrity who makes millions a movie will have no problems buying the diamond bracelet. It’ll be a no-brainer to them and will barely diminish their net worth.
However, a lady who works as a manager at a supermarket and is not drawing ‘big money’ will find that the cost of the bracelet puts her in debt if she were to buy it. She may be able to afford the monthly payments, but that doesn’t mean she can afford the item.
There’s good debt and bad debt. If you buy a home, it’s an asset and good debt. If you buy items such as fast cars, diamond bracelets, designer clothing, etc. and you go into debt, this is bad debt and should be avoided.
3. Can your finances handle the sudden expense?
Always cut your suit according to your cloth. If making a big purchase means that you’ll be on a very tight budget every month, it’s best to avoid it.
So often, when people calculate a purchase, they overestimate their ability to pay for it. They believe that if they cut costs here and there and trim their expenses, they’ll be able to afford the purchase.
However, life is unpredictable. Your budget may be tight and you may think you can get by… until suddenly, your landlord decides to raise the rent. Or the price of gas rises. Or your car breaks down. Or your kid has a fall and you need to pay out of pocket for the medical bills. These unforeseen events can put you in a tailspin and before you know it, you’re deep in debt and falling behind on your payments.
So always err on the side of caution and avoid big purchases if it will stretch your finances to almost breaking point.
4. Are there cheaper alternatives?
Whether you buy a Rolex watch or a Casio watch, both will tell the same time. Whether you buy a Japanese car or a Lamborghini, both will get you to the same destination. Whether you buy an apartment or a mansion, you can only be in one room at a time.
If you have the money to splurge and live the high-life, go ahead. But if trying to keep up with the Joneses takes a severe toll on your finances, you’re better off staying humble.
Get the cheaper alternative. Forget the sports car and choose the reliable Honda. You need a vehicle, right?
Well, get one that you won’t struggle paying for. Also, always shop around before making any purchase.
A can of soda costs less than a dollar at the supermarket. The same soda can cost 3X more at the cinema. And this is just a soda. Now imagine how much greater the difference will be for expensive items. Always shop around and look for the best price.
5. How did you get by this far without it?
Last but not least, this is the most ‘revealing’ question of the lot. Ask yourself how you lived this long without buying the item you currently want.
In most cases, if it’s an item of desire, you won’t really need it… and could get by just fine without it. But your heart craves for it and you’re tempted even if deep down you know you can’t really afford it comfortably. Ask yourself why you need it now. Will it make you feel happier? And for how long?
These questions will wake you up and reduce the buying impulse in you. Then you’ll be able to decide with a clearer head.
In most cases, if you go home and wait 2 weeks, you’ll realize that you don’t even want it after all.
The 5 questions above will help you greatly when you’re contemplating making a big purchase. Sense must always prevail over desire if you wish to stay out of debt. If you really wish to live a luxurious lifestyle, it’s best to increase your income considerably so that you can afford the finer things in life without going into debt.
Bring more value to the marketplace and you’ll be rewarded greatly. Then you can buy whatever your heart desires because your finances will be able to support your lifestyle. Being broke is hard. Becoming wealthy is hard. Choose your hard.