Stuff. We all want it. From tech gadgets and furniture, to clothes and appliances, not to mention vacations, concerts, and sports games; a million brands are trying to get you to spend your money left and right day and night. We’ve all found ourselves in that situation when you’re shopping and stumble upon something you “love” and have to have. Sure, it may be a little pricey, but think of how it will make your life better!
Can you really afford it? Technically you have enough money in savings to pay for it (and if you don’t, stop shopping!), but can you really afford it.
What does “really afford it” mean? Well, there are some things you should take into account before you buy anything. This is especially true for large purchases–houses, cars, etc. However, that same line of thinking should apply to any purchase. Here are some questions to ask yourself before you pull the trigger and buy.
1) How much do I have saved up?
A general rule of thumb is that putting 10% of your income into savings is a good starting point, though some people save more than that. It’s not just about what you have in your main savings account; how much do you have in an emergency fund? It’s advised that in addition whatever you have in savings, you should also have 5-7 months worth of living expenses saved up in case of unforeseen circumstances.
This also includes any investments, like a 401(k) or Roth IRA. These are both incredibly useful tools that can grow your nest egg until retirement. If you don’t have enough in either of these accounts, than that $600 you were going to spend on a new phone could maybe be put to better use elsewhere.
2) How much debt do I have?
Sometimes debt is an unavoidable fact of life. And while it’s not very realistic to completely stop spending money to pay off your debt, you should still make it a priority. If you’re in long-term debt, like from a mortgage, then you need to make sure you’re consistently paying it down in monthly installments. This won’t necessarily be a lot of money, but it should be a priority.
If you have short term debt, like credit card debt, that needs to be paid off first. Especially if you’re in danger of falling into a deep hole. If it comes down to buying that new outfit or paying off credit card debt, get rid of the debt.
3) Should I buy it?
Just because you can buy something, doesn’t necessarily mean you should. Why? Because long term financial success is all about discipline. This means consistent spending and saving decisions and having one eye towards the future.
Next time you go to make a big purchase, think about if you really need it. You may decide “No, but I’ll make an exception this time.” Be careful. This time it’s an exception for a new couch. Next time it’s an exception for a new TV. Before you know it, you’ve overspent on luxuries that will only depreciate in value.
4) How much have I been spending recently?
The most fiscally responsible keep a budget. Big purchases are bound to make going over budget inevitable, but that doesn’t mean you shouldn’t at least keep a running tally in your head. Think about the last few weeks. Have you been dining out a lot? Going to more games or shows than usual? Upgrading your wardrobe one piece at a time?
If you’re going to make a big purchase, account for it in some way. Maybe that means waiting until you’ve saved a little bit more. Or maybe you should spend less in the following months. Either way, make sure you don’t let big purchases set your budget back too much. To get started, download the Zebit Instant Budget App today!