Are You Thinking About A "Big" Purchase? Here Are The Pros and Cons

Let’s be honest: buying new things can be exciting (they don’t call it retail therapy for nothing)!

But there’s a huge difference between buying a new book for the weekend and putting a downpayment on a car. While your cash flow plan may not bat an eye at your $25 Barnes and Noble receipt, it might start sweating at the $47,000 (average cost of a new car today) electric crossover you want to park in your driveway.

You’ll likely make some pretty big purchases throughout your life and career—electronics, cars, houses, furniture, collectibles, etc. You and your wallet must be prepared for that expense when you do. 

Today, we will look at the pros and cons of these “big” purchases and how to be as thoughtful and intentional as possible to avoid buyers-remorse. 

Key Takeaways

Before you sign on the dotted line, think about how the “big” purchase aligns with your goals. Ask yourself, how is this item adding real value to my life? What is the purpose of my desire to purchase this item?

There’s a major difference between buying an appreciating or depreciating asset. You don’t have to justify “big” purchases by calling them investments.

Depreciation is relative to the context of your life and values, so make big purchases with your goals at the center.

Let’s go shopping!

Before You Spend, Do A Values-Check

2022 may be the year for big spending. According to a WalletHub survey, 54% of people plan to make more large purchases this year. With more people ready to swipe their credit cards or take out loans, it’s important to remember “why” you want to make this purchase in the first place. 

You want your spending—both big and small—to align with your values. Doing so brings more intention to your money and better connects it to your life. When you spend in ways that are meaningful to you, your money has more purpose and impact.

So, before you spring for the custom-made couch or vacation condo on the beach, ask yourself,

• How does this purchase align with my values?
• What concessions (if any) would I have to make if I bought this item?
• How will this purchase elevate my quality of life?
• Does this purchase still allow me to work toward my other financial goals?
• Have I done my due diligence with comparison shopping and planning?
• Can I truly afford this item? 

For example, you don’t want to simply purchase the latest electric vehicle and wipe out your emergency fund for the downpayment or realize too late that the two-seater can’t accommodate your family of four.

It’s important to think about how these items fit into your everyday life and cash flow plan. So be sure to consider it from a personal and financial perspective. 

Your “Big” Purchase May Lose Its Shine Over Time, But That’s Okay.

Before you make a big purchase, remember that there will always be something newer, shinier, cooler, or more advanced in the future. So before you buy, be sure you walk into the store, dealership, website, etc., with both eyes wide open. 

One way to do that is to realize that your “big” purchase is really a depreciating asset. 

What does that mean? 

A depreciating asset is something that loses its value over time. Unlike stocks in your portfolio or your home (which you hope will grow in value over time), assets like cars, clothes, furniture, and more tend to lose value the longer you own them. 

Think about it; you likely won’t be able to recoup all of the money you spent on your car ten years later. Plus, it won’t run the way it did in the beginning. Your couch will lose color/shape/structure and put you in the market for another. You’ll never get back the $80+ you spent on a new sports coat or blazer for work. 

If an asset depreciates, it continues to lose value the longer you own it. Plus, the item’s quality eventually deteriorates, leaving you unable to use or sell it.  

So what assets fall into this category? 

We’ve mentioned some, such as a car—the value drops as soon as you drive it off the lot. There are many other examples like boats, furniture, and technology. Once you buy them, they start to age, and their resale value becomes less and less over time.

Vacation homes may even fall into this category. You might be thinking, but wait, that’s real estate! 

Yes, real estate isn’t always the best investment, especially vacation properties. They are expensive to maintain, and if you don’t rent them out while you’re not there, you will end up paying a ton of money for upkeep, maintenance, and routine costs (mortgage, property taxes, etc.). You may find that you’re sinking a lot of money into a place you only use 3-4 weeks out of the year.

Consider The Potential Trade-Offs and Prioritize Accordingly

When it comes to your money, you’ve maybe heard the saying, “you can do anything, but you can’t do everything.”

This sentiment rings true when you apply it to significant purchases. Take some time to think about all the big purchases you want to make in the next few years. 

Perhaps your family did well with one vehicle in the pandemic, but with you and your spouse both returning to work, you’d benefit from two. You might also be considering a timeshare at your favorite beach. Or maybe your computer is on its last leg, and you’ll need to get a new one. 

You might not be able to reasonably take on all of those expenses at once, so consider prioritizing the most important. For you, the car might be more practical, and you’d get more use out of it than one vacation spot. 

Once you know what you want to prioritize, think about your timeline for making the purchase and what you need to do financially to feel secure. Can you allocate extra monthly resources to help you save for the item?

Have you considered all the potential trade-offs? For example, a vacation home might mean you can’t travel the world and tie yourself to mostly one travel location.

Big Purchases Can Be Valuable, Even If They’re Not An “Investment”

At this point, you might be in the middle of second-guessing your future purchase, but remember, there’s nothing wrong with making a major purchase, even if it’s not an appreciating asset.

These items can provide you with enjoyment and make your life easier. The questions you have to ask are will this item stand the test of time (at least for as long as it reasonably should)? Is this the most practical use for your money?

The key here is to not fool yourself into thinking a depreciating asset is an investment. Doing so could lead you to make a purchase you may regret. Your purchase doesn’t have to be an asset to add value to your life. 

Just because your car will lose value over time doesn’t mean it’s not worth the convenience and ease it will bring to your life for a decade or more. When you think about depreciation, consider it in context with the rest of your life and make decisions to help you further your goals. 

Be sure to consider not only the purchase price but also the ongoing costs you’ll incur because of the purchase. You don’t want to spend a good chunk of change on a fancy boat and not consider the continuing docking and maintenance fees.

It’s also essential to ensure you aren’t derailing your other financial goals. Would a specific house or car payment mean you’d have to save less in your retirement accounts or additional funds? Remember, every big purchase will come with trade-offs, but you should establish some boundaries and non-negotiables. 

See How A Big Purchase Fits Into Your Life And Cash Flow Plan

Money is a tool to help you live a more intentional, purpose-driven life.

When you’re making big purchases, be sure to think about the financial and personal factors that go into this decision. Yes, you want to be sure you’re in a solid financial spot to make the purchase, but you also want the purchase to be as intentional and meaningful as possible. 

You don’t have to buy a fancy car or vacation hotspot to keep up with the Joneses. Set your own benchmarks for success using your values as a compass. When your values are your north star, you’ll never get lost. 

At AVID, we’re passionate about helping people use their money in value-driven ways. If you’re considering a big purchase, let’s work together to see how it fits into your financial and life plan. Set up a call with us today.