How to plan for big purchases despite shaky finances
Is it time to consider a big purchase? A house, a car, or maybe your washing machine is on its last leg? It’s a purchase you have to make, but how can you make it happen? Money has always been shaky, and it’s no better now. You can make that big purchase, but it won’t take place overnight. You have to be strategic in your planning to make it work.
Let’s go through some of the things you need to consider, from scrutinizing your purchase to creating a budget and setting savings goals to ultimately getting a loan for a considerable purchase.
Consider Your Purchase
Your purchase should not be an impulse buy. The emotional push is always to “buy it now,” but you need to avoid that desire. Your purchase needs to be well-thought-out before you do anything. Some questions you should ask yourself before committing to buy should include the following:
Is this an item that I really need? Determining your need is important so you can work out how to budget for it.
Can I buy the item with cash? If you have to go into debt to purchase the item, it implies that it is out of your budget.
Do I have to buy a new item, or will a used one work? Buying used when possible is a great way to save money.
May I be able to purchase the item on sale? Knowing when your item typically goes on sale can save you a lot of money.
Create a Budget
Once you determine that the item you want to purchase is an actual need, it’s time to get serious about budgeting. Budgeting involves understanding your income, knowing your expenses, and tracking your spending so you can determine where you can cut back to save money. There are a lot of tools available to help you create a budget, so don’t feel like you’re alone in this process.
Make sure you include all of your expenses in your monthly budget. Some expenses can be easily overlooked:
Child care fees
Medicine and Vitamins
Another sometimes overlooked factor that needs to be in your budget is the amount of energy your home uses. If you examine your home appliances and even your light bulbs, the amount of wattage the item takes up can be calculated — or it may even be on a label. If you don’t have any luck there, you can look in the owner’s manual. By knowing an appliance’s wattage and how much you use it daily, you can figure out the cost of running it in your home.
Setting Savings Goals
As you create your budget and determine your spending, you may be surprised at the amount you spend that you really didn’t need to. It’s time stop that overspending, but that’s much easier said than done, particularly if you’ve been overindulging for a long time. It’s time to set goals. When setting financial goals, you are using an entrepreneurial mindset. Entrepreneurs think ahead and set goals that lead them to a rewarding future. This is the type of mindset you need to be successful in your savings endeavors.
Areas in which to cut back your spending include the following:
Subscription services. Cut out any that you do not use enough to warrant keeping.
Gym memberships. Look into free fitness apps.
Cable TV. Switch over to less expensive, live streaming services.
Groceries. Avoid expensive impulse buying by writing a list and sticking to it.
Credit cards. Look for cards that offer rewards or cash back for purchases.
Compare Loan Options
There are some big-ticket items, most notably a house, that many people just can’t pay for with cash. This is when shopping for the best loan is important. The interest rate you qualify for largely depends on your credit score. The higher your credit score, the lower your interest rate, and the lower your interest rate, the less money you’ll spend.
There are ways to increase your credit score, but keep in mind that it cannot be done overnight:
Pay your bills on or before their due date
Examine your credit report and make sure it’s accurate
Lower the balances on your credit cards
Avoid opening any additional lines of credit
Keep open any accounts that show your good credit history
Can you acquire a home loan with poor credit? Yes, but you may need to pay a substantial down payment. If your credit score is below 580, you may need to pay more than 20% down to qualify. When searching for a loan, keep in mind that every lending organization and program has its own specific requirements. The first place that comes to mind when searching for a loan is a bank. While a bank may have lower interest rates, they also require higher credit scores.
Federal Housing Administration (FHA) Insured Home Mortgage
U.S. Department of Veterans Affairs (VA) Home Loan Program
Rural housing loans sponsored by the United States Department of Agriculture (USDA)
Making a big purchase should be thought out carefully. Once you decide to proceed, you should figure out your budget and determine ways to save. Try to buy with cash, but if that is not an option, weigh your loan options carefully. By doing these things, you can make that big purchase and feel secure with both your purchasing decision and your finances.