How You Can Make Big Purchases The Smart Way
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Money in the 20s is a blog about personal finance, investing, the economy and business school. |
Do you want to buy a new car? What about a new laptop for school?
One topic that I really have wanted to cover for the longest time is the idea of big purchases. The fool’s guide to big purchases is simple:
- Put it on your credit card.
- Worry about paying it off later.
You’re not a fool and you’re here to do things the smart way. Let’s buy that laptop the right way.
How can you make big purchases the smart way (the way that avoids insane credit card debt)?
Figure out the REAL cost
What’s the cost of this purchase? Now figure out the actual out-the-door cost. What will it cost you at the end of the day? To figure out the final cost, you need to consider any of the following:
- Insurance fees.
- Additional warranty.
- Upgrades.
- Delivery.
- Taxes.
- Financing.
Factor in all of these costs and you’ll be left with the out-the-door cost. That’s the price that you need to look at. Not the pre-tax cost. A laptop going for $999 is NOT a $900 laptop. You could spend up to $1,400 in total.
Calculate how much you need to save
After the first step, you’ll see how much cash you actually need to pull together to grab that new Macbook Air (yep I got one of those brother!). Now you have to decide how much to save.
How do you do this? By following a few simple rules.
After performing some research on making big purchases, I found a few simple rules worth following:
If it’s less than $1,000, save up for it.
If it’s more than $1,000 try to save up 25%.
Look at your expenses. Check your credit card balance and your income. Are you in a position where you can save a thousand bucks? Do you have to pay off your original balance first?
If you’re at zero, I suggest that you follow those rules. Work your way up to a thousand bucks or 25% depending on the purchase amount.
If you owe a ton of money, you might want to consider focusing on that credit card balance first.
Do comparison shopping
The good news is that you have some time on your hands while you save up for this purchase. Our parents seem to be pretty good at this. With the Internet you can sign up to one of the hundreds of coupon-sites out there to keep tabs on upcoming deals. You can also check the website of the product to see what’s happening.
One thing I look out for is new models and new releases. The beauty of a new release is that the original laptop or cell phone you had your eye on will likely go down in price because everyone else will want the newest release.
For comparison shopping you can also compare alternatives, different brands, and different products altogether.
Create sub-accounts
Another trick is to set up a new account to help you save up for this purchase.
With ING Direct, I have created a “Trips” account where I save up for upcoming trips. I love this because it allows me to keep my focus on my goals and it puts things into perspective. That $100 night out doesn’t sound so attractive when it’s taking money away from your next trip.
That’s how you can buy a laptop or any other big item the smart way.
Have you bought anything cool recently?
