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Whether it’s a new living room set, car or piece of jewelry, knowing how much one can spend on a big-ticket item is essential to not getting overwhelmed by looming payments and being financial responsible.
Before heading to the store and putting money down on a large purchase, it is wise to first examine the funds currently available for spending, Thibodaux’s Walters, Meyer, Trosclair & Associates Financial Advisor Andrew Walters explained.
“When I’m thinking about a big purchase, the first and foremost thing that I would try to look at is cash flow – what amount of money do you have left over at the end of each month that you have to put toward this?” Walters said.
From there, research interest rates to find the most affordable option or decide if purchasing it outright can be done, he said.
If you can afford to pay for the item without depleting emergency funds or savings accounts, this is the best route to go, online financial resource About Money recommends. If it can’t be paid for on the day of purchase, determine if the item is a luxury or a necessity. If it is a necessity, like a replacement appliance, for example, look at reviews to select a reliable product and shop around to find the best deal.
In doing research, consumers should also make note of the average cost they should expect to pay and how it factors into their current budget.
North American travel organization AAA stated in its 2015 “Your Driving Costs” study that the annual cost to own and operate an average size sedan is $8,698, while a small sedan will cost $6,729 and an SUV will cost $10,624. For engagement rings, consumers can expect to spend almost $6,000 according to “Real Weddings,” a survey by leading wedding website, The Knot, which polled approximately 16,000 couples married between January and December 2014.
For those choosing to finance, interest-free options are typically available. According to a look at engagement ring purchasing from The Associated Press in June 2014, this type of financing can make payments easier but should be monitored closely as many must be paid off in a certain number of months to ensure the interest accrued will not be charged after the promotional period. There may also be options available for those that don’t have an average salary.
Bueche’s Jewelry Sales Clerk Charlie Prosperie said the East Houma-based store provides two options to help customers qualify for financing.
“In most cases, we recommend going through a bank or financial institution that they have a good relationship with already if they can,” Prosperie explained. “We also have a kiosk in the store for those that may have little or no credit or for those with low income that allows them to apply for a loan with a company called Progressive.”
According to “Smart Money Smart Kids,” financial author Dave Ramsey and co-author and daughter Rachel Cruz suggest waiting overnight before making the commitment to a large purchase. If the purchase doesn’t seem as important in the morning, don’t buy. This tactic will make for more “good” purchases, ones consumers won’t regret later.
The interest rate of the purchase, Walters added, could also help make the decision of whether to buy now or wait and save.
“What it really comes down to is what the interest rate is on the loan that you are going to get and what interest rates you think you can earn on investments,” Walters explained. “Then you figure out if it makes more sense to finance or purchase it outright.”
Making a major purchase is sometimes quite a source of stress to adults. But by doing a little bit of research and budget planning, experts explain that it’s a process that can be easier.
