2020 is a year unlike any other. It shocked us and had many people scraping their savings together as quickly as possible. However, as the year wears on, many begin to eat out again, take trips, and spend. Though our current economy is still causing concern, you may have your eye on a new phone, a vacation, or want to budget in some money for fun dinners out. How do you know when the purchase is worth the cost? Below you’ll find 5 helpful questions to ask yourself before spending money so you can decide with confidence.
1. What’s Your Budget Like?
Pretty obvious, right? When you do this, think about the cost of the item or experience, and how it fits with your bank account. For example, if you’re paying off debt and there’s only a few hundred dollars worth of margin in your account, it may not be the best time to buy a brand new TV, as cool as that would be. Instead, it’s probably time to focus on growing your savings and working extra hours.
But, as with most things, there’s more than one way to look at the situation. If you find you can’t afford the splurge, you can do one of two things: first, say no, and move on.
Or the second option: yes, later. Option two involves saving up a percentage of money each month, usually for several months in a row, until you can afford that big purchase. This way, all your extra cash doesn’t go towards it at once. It takes more time, but it’s a small sacrifice for peace of mind.
However, you may find that you can more than afford that purchase. Please understand this to mean: you already have some emergency savings, and will not be spending everything in your bank account on this item. If you want real numbers, this means having over a month and preferably two months of expenses saved, and knowing that your job is reasonably stable. But the price of the purchase also matters. (If I have $2,000.00 saved, I can probably afford a movie, but not a vacation.)
2. How Much Will You Use the Product?
Some items offer instant gratification -movies, food, etc. Others give you a significant return on investment over time. And these tend to be more expensive. Ask yourself the question of how much value you’ll get from the purchase over a considerable amount of time. Usually, if the item offers only short-term gratification, you’ll find yourself turning towards other options. Let’s see…$20.00 to rent a new movie today, or save for a few months and buy all the movies in the series, to watch multiple times? (Side note: How many TV streaming companies are getting rich right now while everyone is social distancing?!)
This is one example, but you might apply it just as easily to a new phone app, a video game, or a computer program. Point being, when spending money you make an informed decision, understanding the value of the product or service, and exactly how much it’s worth to you.
This applies to electronics, workout equipment, and furniture. What will your purchase be worth should you choose to sell it years from now? Since most products depreciate, it’s not going to be the same as what you paid. But if you do your research, some items hold their value for a while.
3. Can You Resell it?
We once bought a TV that we really liked. It was considered one of the best televisions at that time. We got in on sale, and because the price went back up after we bought it, it continued to hold it’s value for over a year. But guess what? I’ve also had instant regret from buying things like movies just because I was bored. It’s entertaining for two hours, and then that’s it – it’s over. Resale value is not everything, but sometimes it’s nice to know you could make some cash if needed later on. Speaking of which, Armela Escalona wrote a great article for Lifehack listing websites where you can sell your unwanted items. Find it here.
4. Will it Create Lasting Memories?
Are you spending money on something that will help create great memories? Can you still make those memories without buying anything? This question is more about experiences, usually. For example, let’s say you want to take a family road trip across your state. The quality time and photos may be worth the cost. But ask yourself: could we do something equally fun for half the price? Maybe you go camping instead and save money. Or you simply all spend the weekend at home hanging out together. These options are cheaper or free. You still make memories but can ditch the hefty price tag.
5. Is the Purchase Small and Occasional Enough to Put in the Budget?
“Small” means something under $10.00 usually. Items that fall into this category might be coffee, a book, or a dessert. A word of caution here: if you go this route, it becomes easier to justify spending more. One coffee becomes five, and so forth.
Instead, can you form a habit concerning this type of spending? Meaning, you get coffee out only on Sundays, or Friday night is when you go out for dessert. If you build this spending into your routine on an occasional basis, the chance for overspending lowers.
I know there may be some fear associated with spending money right now, and with good reason. We are experiencing unprecedented levels of job loss, business closure, and financial uncertainty due to Covid-19. However, keep this in mind: we still have much to be grateful for. If you have any disposable income at all right now, you are blessed. If not, but you’re reading to understand money better, you’re educating yourself financially, which is excellent.
Sure, 2020 has been crazy. But we will find ways to adapt. We can adjust our thinking and be smart about money to create the best future we can for ourselves and our families, and that’s good news.