Money Tip #3Posted: January 21, 2015
Tip #3: Recognize the true cost of your purchase.
Sometimes we make decisions that really won’t impact our financial future in any significant way. A pack of gum or an occasional treat from the vending machine will most likely NOT be the deciding factor on when you can retire (or consider yourself financially independent).
While the purchase price is important, I like to focus on the other costs associated with a purchase. Think about the following purchases you might have made or are thinking about making and the associated costs above and beyond the purchase price:
-variable lifetime costs: new software, accessories, repairs, etc.
-variable lifetime costs: gasoline, title/registration, inspections, repairs, routine maintenance, interest (if you financed the vehicle), insurance, lifestyle inflation, etc.
-variable lifetime costs: interest, insurance, property taxes, utilities, furniture, maintenance, repairs, landscaping, lifestyle inflation, etc.
Notice that with each of these purchases there is much more money involved than the sticker price of the item. Do you find yourself thinking about these added expenses when you evaluate a purchase? If not, perhaps you should. I encourage you to ask yourself the following questions this week as you evaluate purchases, whether big or small.
1. Do I really need this? [the more frequently you answer “no” to this question and move on with your life the happier your future self will be]
2. Can I purchase an older version of this? [in the case of a car this could save you thousands!!]
3. Can I pay cash rather than financing this? [hurts more now, but often comes with huge long term savings]
4. Can I purchase a smaller/less expensive version of this? [think minimum needed to get the job done- do you really need that extra bedroom or performance feature on the computer/car?]
I’d like to delve deeper into each question in future posts, but while you anxiously wait for me to deliver I would love to hear about your experiences evaluating purchases and how these types of questions have influenced your decisions.