08 September 2014
Take the Sting Out of Buying Big Ticket Items

Big ticket items are those expensive things we need and want.  While there’s no actual dollar amount to define a big ticket item, they include necessities like cars, refrigerators, washers and dryers, and other items that have the potential to bust your household budget.

Being prepared is the key to affording these items.  Here are some tips to think about now, so you’ll be more ready when the inevitable big bill arrives.

Plan for it, because you know you’ll have to make an expensive purchase. Cars don’t last forever, and an old furnace can flame out at any time, so plan ahead.  Open a contingency money market account at your bank and contribute to it each paycheck.  Place unexpected money directly into your contingency fund – raises, performance bonuses, a nice tax refund – all go straight into your rainy day account.

Sell an unused big ticket item to offset the cost of a necessary purchase, i.e. if that tread climber has become a clothes rack, sell it to offset the cost of a new water heater. Sell unused items before you need to make that big purchase.

Look to the future. Household finances change. Mom gets a raise. Dad is up for a promotion. If your company is planning layoffs, you may want to hold off on buying a big ticket item. On the other hand, if you know you’re in line for a promotion, you’ll be in a better financial position to handle the purchase of a high-value item.

Determine how much you can afford. If you haven’t done it already, create a household budget. Use your check register or bank statements for the past year to determine how much you ordinarily spend on what.

If you determine that you do have discretionary incomeincome not required to pay routine monthly expenses – bank the excess cash, or use it to pay off a big ticket item over time. If you have an extra $150 left over each month after all the bills are paid, save that money in your contingency fund. If you need a big ticket item now, keep the monthly cost of the item below that $150 threshold to avoid digging yourself a hole of debt.

Steer clear of buying rent-to-own. Rent-to-own retailers charge rent on a potential purchase that, ultimately, can add significantly to the final cost of a big ticket item. Renting a new computer for $25 a week may sound good until you realize you could buy and own a similar model by saving $25 a week for five months. No interest, lower total cost, same computer.

Shop around. The Internet makes it easy to conduct comparison shopping to find the best deal. Take your time, read the reviews, compare features and costs, and finally determine which make and model is right for your budget and your needs.

Buy it used. Some high value items have a long life expectancy. Cars, for example, are built to last, so buying a used, low-mileage vehicle can save you a lot of money. On the other hand, buying a used high-end computer from someone online may be more trouble than it’s worth.

If the item is still under manufacturer’s warranty, you have that additional layer of protection, but always check the fine print. Some manufacturer warranties aren’ttransferable, so you don’t get that guarantee from the manufacturer.

Always have money on hand for emergencies. If the furnace gasps its last breath, it’s an emergency, but so are medical expenses, or living expenses in the event that the household loses a source of income for a few months.  Don’t tap into that “untouchable” emergency fund you’ve created to buy a big screen TV. In fact, try to find other ways to manage the purchase of a big ticket item before tapping into your real emergency fund.

Don’t put it on plastic unless you’re desperate. Spreading out the cost of big ticket items through credit card use only adds to the total cost of buying it. The longer it takes to pay down that credit card bill, the more the item costs, so if you have to charge it, pay your credit card balance down ASAP.

If you plan ahead, knowing that big ticket purchases are just a part of life, you’ll be prepared when the old clunker parked in the garage finally gives out.  Start today.

Life happens, and when it does, you want to be ready for whatever comes your way.  

 

The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice.

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