Diane Kennedy, EAP and Financial Education, helps Parkview co-workers navigate the challenges of saving for retirement, getting out of debt and other financial planning obstacles on a weekly basis. Here, she shares her tips and tools for working through a major purchase with less stress.
Considering a substantial purchase or investment?
Perhaps you need a new refrigerator, or a more reliable automobile, or even a new house … The thought of making such big decisions with such significant costs attached can be daunting. You’ll want to plan your major purchase carefully. Having a clear idea of what your needs are versus your wants is essential to staying within budget.
There are numerous tools out there to help you decide. We’ll discuss three today – The Action Plan, the T-Chart and online calculators.
The Action Plan
- Define your goal. What do you want to achieve with this purchase? For example, “We need a new refrigerator to store the food for our large family that eats a lot of frozen meals. Be as specific as possible.
- Establish your criteria. What are the features you absolutely must have in your next major purchase? And which features would you like it to have? Using the above example, “We need a refrigerator with a large freezer section,” the need is the large freezer, while a nice side-by-side design might be a want associated with the purchase.
- Choose two to three good options. It’s elimination time now. Remove any products without your must-have features. Narrow down your list to just two or three different options.
- Identify the pros and cons. Make a chart so you can quickly compare the features and prices of each of your top choices. For example, “Option 1 has the big freezer section, but it is not in my budget.”
- Decide what’s best for you. Choose the option that best matches your criteria.
- Evaluate the purchase. Did you stay within budget? Do you feel good about the purchase? Begin saving for the item as far in advance as possible.
A Simple T-Chart
The idea here is to list the pros and cons of a particular decision. For each option, list the pros on the left and the cons on the right of a “T”. At its simplest, if the list of pros side is longer than the cons side, go ahead with the purchase. If the list of cons is longer, don’t do it. Another variation would be to give each consequence a number depending on its importance. The numbers in both columns are added and you go with the highest number of points. A simple T-Chart for deciding whether to continue renting your home versus buying a home would look something like this:
Finally, there is a plethora of online calculators that can help you make major decisions about purchases. For example, bankrate.com has an online calculator that leads you through a series of questions to help you decide whether to buy or rent your next home.