For most of us not a day goes by when you don’t make a purchase of some kind, it might be just a cup of coffee or it may be a big one like a new car. It can be easy to get caught up in the things we are “getting” and forget about the real cost of purchasing an item.
Whether it is a small or a big purchase asking yourself these 5 questions will help you work out if you can really afford it!
- What are the costs? Now you might think you know the answer to this but we need to look beyond the price tag. For example a coffee may cost you $5 however have you factored in the time it takes to get the coffee. Beyond that have you considered the health impacts of the sugar you have in your coffee and that little irresistible cookie they pop on top? Now, I am not judging your coffee or sugar consumption, what I am saying is that the cost of an item may be more than you initially think. Here are some things to consider:
- Time it takes to use the item or do the activity
- Time it takes to maintain the item
- Cost of insurance and maintenance
- Additional costs (eg car’s fuel or a printer’s ink)
- Space it takes up in your mind (eg a gym membership may leave you worrying about working out enough to warrant the cost)
- Spaces it takes to store the item if it is physical
- Is it a want or a need? Don’t worry I am not going to tell you that just because something is a want rather than a need you shouldn’t buy it. But this is about being mindful of what your reasoning is behind buying something. If you consider something a want, just take some time to consider why you want this item, will it bring you joy? Are you purchasing it purely because you have bought into their marketing ploy? Are you just trying to keep up with the Joneses?
- Are you getting the best deal? It’s important that you don’t spend a crazy amount of time trying to shop around for the best price but you should work out what is a reasonable price to pay for the item or service you are considering. At the same time investigate what features or extras you can expect for the price you are playing.
- Is there another alternative or a better strategy? Going back to our coffee example would you be better off purchasing an at home coffee machine and making your own coffee to take with you in the morning? For bigger purchases that are a one off use eg maybe you are attending a market and need a marque, can you borrow one from a friend. Or perhaps buy one second hand for a fraction of the cost.
- How will you pay for the item? It can be super easy to just pop something on your credit card and forget about it but you need to consider the interest you will incur and how quickly you can pay it off. On the flip side you may be earning reward points on your credit card and able to pay it off in a timely manner. Before you tap that card it’s a good idea to just consider what is going to happen with that purchase.
These 5 questions don’t take long to consider but if you start thinking about these things you will soon go through this thought process automatically and find yourself making more conscious purchasing decisions.
If you feel like you would like to improve your financial literacy and really take charge of your money you can book in a free consultation with Grace here.