10 ways to prepare for a big purchase
One of the hardest parts of a major purchase is the mental hurdle you have to overcome. You’re parting with a lot of your hard-earned money, you’re taking a risk on a major investment, and you might get cold feet. Finalizing a major financial transaction can be stressful and anxiety-provoking for even the most experienced buyer. How can you overcome these obstacles? Here are 10 ways to prepare for a big purchase.
Assess your financial situation
Before you even consider buying, you need to make an honest assessment of your financial situation. Can you afford the purchase with your current income, debts and other expenses? You need to know how much money your household earns in a month and how much you spend during the same period. make sure account for all taxes when calculating this number.
Once you have a good understanding of your finances, you can figure out how much money you need to save (more on that later). A thorough assessment might also reveal that you need to improve your credit score, which ties into the next tip.
Build your credit score
A high credit score/FICO score will help you get lower interest rates on loans, which are often essential for major purchases. You can build a better credit score by applying these basic principles:
- Pay your bills and debts on time.
- Reduce your credit card balances.
- Stick to a line of credit.
- Review your credit reports for potential improvements.
These habits tell lenders, associates and suppliers that you are managing your money responsibly. They can trust you to keep your end of the bargain, which increases the likelihood of a successful transaction.
Get a loan
With a stable financial situation and a high credit rating, you can get a fair loan with a low interest rate. However, your search cannot take too long. Make several loan applications in a short time can lower your credit score and unravel your hard work. Limit your search to a small group of lenders and compare their loan products.
make sure include all purchase costs when applying for a loan. Demonstrate that you fully understand the scope of the purchase in order to get the best deal possible. Also, if you need a pre-approval letter for your purchase, the lender can provide you with one.
Explore loan options
Once you’ve chosen a lender, discuss the different loan options and decide which one best suits your needs. Options vary depending on the product you want to purchase, but here are the most common plans for large purchases:
- Conventional: The best choice for borrowers with good credit ratings.
- Giant: Ideal for borrowers with high credit ratings looking to purchase an expensive vehicle or home.
- Fixed rate: The monthly payment remains the same.
- Adjustable price: The monthly payment may change, but is only recommended for people who do not plan to own the home/vehicle for an extended period of time.
- Government insured: Ideal for borrowers with low credit scores and insufficient funds for a down payment.
If you manage to get pre-approved, you’ll know the maximum amount you can borrow and factor that into your future plans.
Research the product market
When you are gathering your finances and preparing to take out a loan, you should also research the market for the product you are considering buying. That big purchase you’re considering is likely a home or a vehicle, so pay attention to the relevant factors in each market. You might learn something that changes your plans.
For example, fixed housing market mortgage rates reached its highest average since the 1990s. The automotive industry is in the face of global supply shortages for essential parts, which caused production and sales figures to plummet. This information can make or break your purchase, so you need to stay informed.
Research also helps you find the most cost effective option available. Some people prefer homes and vehicles with large down payments and lower monthly rates, while others prefer the opposite. You might find an unexpected sale or a unique feature that goes unnoticed. Don’t make your purchase without researching all options and considering all possibilities.
Start saving early
If you’ve made it this far, you have the information you need to set up a buying schedule. However, even if you have plenty of time, it’s wise to start saving as early as possible. You want to have room to adjust the timeline if an unexpected obstacle arises. In the meantime, apply these proven ways to save money:
- Set aside a percentage of each salary.
- Link an automatic transfer/deposit to your savings account.
- Set up direct deposit with your employer.
- Apply the 50/30/20 rule (50% necessities, 30% lifestyle, 20% savings).
- Start a pot of change.
You can also multiply your savings and speed up the process by developing multiple sources of income. Here are some ideas:
- Investing in stocks and cryptocurrency
- Sell items online
- Drive for Uber, Lyft, Doordash, etc.
- Rent additional rooms.
- Have a garage sale.
- Do chores for neighbors (babysitting, dog walking, landscaping, etc.).
- Become a certified teacher/trainer in an industry that interests you.
Of course, the best thing you can do to save money is to avoid unnecessary expenses. You’ll sleep easier knowing you’ve done everything in your power to prepare for the big purchase. Be responsible with your money today so you can spend it tomorrow on your dream home or vehicle.
Calculate opportunity cost
Every purchase has an opportunity cost. Some elements of opportunity cost are obvious. For example, spending a lot of money on a new house means you can’t spend it on other worthwhile investments, like your child’s college savings.
Other opportunity costs are a bit more subtle. the non-financial implications of a major purchase could be more expensive than you imagined. You may need to change your daily schedule and purchase new products to account for the purchase. It could also have significant long-term consequences.
Buying a home or vehicle when you’re not ready can strain your family’s relationships, impact your retirement plans, and alter your lifestyle for the worse. You must understand and appreciate all the effects of your large purchase, financial or otherwise.
Set a meeting date
Timing is everything when it comes to home and vehicle acquisitions, so you need to prepare everything for when the time is right. All of your prior preparation comes into play at this pivotal moment. You have enough savings to pay the down payment. You know the current state of the market and the best time to buy. You know all the sales, discounts and promotions you can benefit from. Putting this knowledge into set the ideal date to meet the seller.
If you start to get nervous at this point, that’s normal. You’ve worked hard to put yourself in a position to buy something valuable, and there’s no shame in feeling anxious as the day approaches. You may feel more comfortable having a trusted agent or advisor by your side. They will help you plan the logistics of the purchase and ensure that you get a fair price.
Negotiate the price
Although everyday purchases have no room for discussion, you could get a discount on the purchase of a house or a vehicle through smart negotiation. First, assess the seller’s personality. If they seem friendly and sociable, you might be able to sway them in your favor. On the other hand, the stubborn and silent type will probably not appreciate your attempts to change the bottom line.
Treat the situation like a formal business interaction, keep your emotions in check, and apply the knowledge you’ve learned in the weeks leading up to this moment. Here are some other tactics that will help:
- Ask for an inspection.
- Communicate through your agent/advisor, if applicable.
- Control the pace of negotiations.
- Reference price comparisons of similar products.
- Take advantage of the seller’s eagerness.
If you and the seller cannot agree on the price, don’t be afraid to walk away and pursue other options. As we mentioned earlier, making a big purchase beyond your reach can have unexpected financial and emotional consequences. Don’t overspend if you can avoid it.
Consider making a deposit
If you’re considering buying a home, you need to pay a large down payment before buying to show that you’re a serious buyer. The deposit isn’t always refundable, but it’s a good way to secure your spot as the top buyer candidate. Down payments for homes are usually 1-2% of the total purchase price.
Deposits for vehicles depend on the dealership, so you must avoid them until you are 100% sure on the purchase and you have documented the final price. Go to the dealership armed with your financing so the dealership can’t force you into making a premature deposit. You control the outcome, not the seller.
Trust your preparations
You’ve made a lot of financial and mental preparations to allow your family to make a major purchase. Believe in these preparations. Trust that your savings and investments will pay off. Trust that you have done all the research to find the best product at a fair price. Enter the negotiations with the certainty that you have done everything necessary for a successful purchase, and soon you will walk away with a product that will change your life!
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