The primary focus of this website is the relatively boring topic of budgeting. We encourage you to use an “actuarial” process to help you determine how much you can afford to spend each year so that you can make better financial decisions. We don’t tell you how much you should actually spend or how you should spend your money. We understand, however, that the actual buying decisions you make constitute the front-lines of your personal financial wellness battlefield. Further, these decisions can affect your emotional well-being and are therefore much sexier than the prospect of developing an actuarial spending budget. We get it. You see something, you want it and you believe that buying it will make you happy (or happier).
In this post, we will discuss some factors that you should consider before making a significant purchase that may help you avoid experiencing buyer’s remorse. Inspiration for this post is an excellent article by Mr. Barry Ritholtz entitled, “What to Consider When Making Big Purchases.” In his article, Mr. Ritholtz uses buying a car as an example, but his sage advice applies to any significant purchase decision.
We will summarize the factors to consider suggested by Mr. Ritholtz and supplement them with an additional factor that we believe is important for couples.
- Budget
Not surprising to us, the number one factor to consider before making a big purchase decision cited by Mr. Ritholtz is determining whether you can afford the purchase. Things he said about the importance of developing a budget that resonated with us included:
- “Consumers need to understand their own balance sheets to be able to make intelligent financial decisions.”
- “Nothing is more basic than putting your financial life on a spreadsheet…” and
- “You need to know what you can afford before you can even get to the question of whether you should you buy it or not.”
We note that our spreadsheets and actuarial processes anticipate separate budgets for non-recurring expenses. Many other approaches do not and only anticipate recurring expense spending. These other approaches will therefore not be as helpful as the Actuarial Approach when considering a big purchase decision.
- Prioritize
Our ability to purchase stuff is limited. Given our finite resources, Mr. Ritholtz advises us to figure out what is more important and what is less important when making spending decisions.
- Don’t engage in mindless consumerism and understand what will—and will not—bring you Joy
We have combined items 3 and 5 as we believe they are related. Mr. Ritholtz suggests buying items that you truly believe will bring life satisfaction and happiness. He also notes that “experiences beat consumer goods, and creating memories is better than accumulating stuff.”
- Needs
We know you want it, but do you really need it? My 2001 Honda still does a fine job of getting me where I want to go these days.
- Is your spouse on the same page?
We have added this one to Mr. Ritholtz’s checklist based on our personal experience: Make sure that your spouse:
- Knows about this decision before it is made
- Has been given an opportunity to discuss your decision thought process, including evaluation of the above items, and
- Is on board with the decision
While we believe that each spouse should be able to make some spending decisions without spousal consent up to an agreed upon maximum amount, we believe it is important that both agree on big purchases.
Summary
When playing Bridge, experts advise that you take a moment and figure out your playing strategy when your partner lays down his or her cards as dummy rather than just plowing ahead. Mr. Ritholtz has given us a nice checklist to consider before “plowing ahead” with a significant spending decision to avoid experiencing buyer’s remorse. Of course, of all the boxes to tick off on his checklist, we believe the most important is #1—Is it in the budget? We suggest using a budgeting approach (like ours) that actually shows the effect on your recurring expense budget of making these large non-recurring expense buying decisions.
