This article is being presented in partnership with the Society of Grownups.
Making a big purchase can be an empowering part of growing up. Whether you're buying a fancy sofa, new car or your very first home, it can feel great to sign on the line for something you really want or need.
However, it can also be intimidating. You may need to adjust your budget, spend a chunk of time saving money or look into financing options.
Before you take the plunge, learn what to consider when making a major purchase so you can enjoy it without guilt, regret - or unmanageable debt.
Step 1: Paint the full picture.
The first step in making a big purchase is to know exactly what you want. You may know that you want to purchase a car or buy "grownup" furniture, but you'll need to research what's on the market, as well as any extra expenses you may incur when purchasing it (such as insurance.)
Nail down the purchase. Once you've identified the exact item you want, assess the potential add-on costs.
In some cases, like a new computer or fine jewelry, these add-on costs can protect your investment and may be well worth the price. And in other cases, like a new car, insurance may be a mandated additional cost.
Purchases like a new sofa or a major household appliance also often come with a warranty, so just make sure you understand what it covers before you purchase (and register your product if necessary after buying).
Consider your values. Step back and ponder whether you'll be glad you made this decision in a year, five years or even ten. Does the purchase line up with your values and your budget?
Visualize the goal daily. Once you know what you want to buy, print a picture of the item or a representation of your goal and put it in a place you'll see every day. Staring at those designer shoes or that dream house on a regular basis can help you stay focused on achieving your goal and make it easier to say "no" to anything that might stand in your way.
Step 2: Make a financial plan.
Once you have a clear idea of what you'd like to purchase, sit down with your budget.
Assess your current financial situation. Take a look at your current income and predictable expenses. It may be helpful to comb your bank statements for any purchase categories that you may not have realized were adding up.
The goal is to get a clear sense of where your money is going, and consider how a big purchase will affect your expenses now and in the future. Here are some questions to think about:
- Is this a one-time big purchase, or will it incur an ongoing cost, such as car payments?
- Will you need to make changes to your spending plan to accommodate the purchase?
- What are you willing to give up in order to make the purchase?
Create a clear savings target. Knowing exactly what the purchase will cost upfront and over the long haul can help you prepare your finances accordingly.
Identify potential trade-offs. After reviewing your finances, you might find that you're surprised by how much you spend in certain categories. Maybe you won't mind bringing your lunch to work every day, or perhaps you could cut back on Uber rides.
The key is to identify areas where you're willing to make trade-offs to achieve your goal.
Consider financing options. You may want to consider financing options such as an auto loan or a low-interest credit card. Financing can be a good choice for some people as long as they have a clear plan for paying off the purchase and are comfortable paying any additional interest costs.
Step 3: Get going!
Now that you know what you want to purchase, how much it will cost and what your current finances look like, you can make a plan to either save up for the purchase or fit monthly payments into your spending plan.
Create a timeline. It can help to write down your target number somewhere and calculate how much you can realistically set aside toward your goal each month. This way, you can come up with a target date for the purchase.
Remember: Waiting to make a purchase while you're saving can give you time to make sure the decision feels right to you. The anticipation can be very motivating, and it can be a good way to get your spending in check, as you'll likely need to say "no" to certain things so you can say "yes" to something you really want.
Consider opening a dedicated savings account. One great savings "hack" is opening a dedicated savings account for your goal. Many banks allow you to do this quickly and easily, and some will even let you name the account.
Separating your emergency fund from your dream vacation fund can be a great way to help you visualize what you're working toward, and I highly recommend it.
Automate contributions. If you're saving for your purchase, one way to ensure you make steady progress is to automate your contributions. Figure out how much you can dedicate each month, and then set it up so the money is automatically transferred from your main account into an account dedicated toward your goal. You may not even notice the missing cash.
Once you know you want to make a purchase and have a clear vision of it, the wait can be hard. However, if you know it's a meaningful purchase that you'll enjoy for years to come, it'll be worth it in the long run. Often, the anticipation of making the purchase makes it that much more enjoyable and valuable when you do finally get to sign on the line.
You can read more advice about saving for big-ticket items on our blog. Are you saving up for a special purchase right now? Tell us in the comments or on Twitter @societygrownups!
About Society of Grownups: Society of Grownups is a learning initiative, created by MassMutual, that is dedicated to fostering financial literacy among twenty- and thirty-somethings. It is a place, online and offline, where people can go to talk openly about money and to learn, from both professionals and one another, about things like negotiating salary, buying a home, planning for a family, and saving for retirement. Offerings in the space include classes, chats, supper clubs, events and one-on-one sessions with Certified Financial Planner™ professionals.
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