Look Before you Leap

Eric Jorgensen, CFP®
Contributor

How many of us have had something so enticing dangled in front of us we felt we just had to take advantage of it? Could have been a new car, a new home, new job - you get the idea. Frequently though, there are unintended consequences; that if we'd taken a little more time to step back and consider whatever it was unemotionally we may not have made the same decision. Or, if we had made the same decision, we would have been more prepared for what came next. 

When making a major purchase don't rely on what you can get a loan for. Lenders aren't concerned about other financial responsibilities you may have. Before you start shopping make a list of what you need/want. The wants should be broken into negotiable and non-negotiable desires; in case you cannot afford  your dream. Knowing what you want before you start shopping will also help keep you focused when sales people start bringing up alternatives. 

Another thing you should be considering are related expenses. If you're buying a new car, what will this do to your insurance payments? Do you need to increase your budget for gas? Does it fit your need? For example, if you do a lot of work on your house and need a truck to carry stuff, make sure this is considered during the purchasing process.

When you're buying a home, the age of the house is a consideration. When were the appliances, roof, furnace, etc. replaced? Do you plan on purchasing furniture - if so, how much will this cost? When putting a down payment on a house you'll want to leave enough money aside to pay for any furniture and/or immediate improvements (like a fence for your dog) you want to make. 

Lastly, moving to another state/country. Generally you'll know what your income is, but that doesn't mean it will go as far. Tools like CNN's cost of living calculator can help you estimate the differences in costs between your old city and new one (doesn't work for moving overseas). Think about medical and dental - you don't want to try to find someone who takes your insurance for the first time when it's an emergency. If you have specific medical needs, verify there are treatment options local to where you are relocating.  It's easy to get caught up in the moment, be swept away by the euphoria of something new or the illusion of everything being better. The trick is recognizing these feelings for what they are, and analyzing the options unemotionally. I recommend talking with a trusted advisor - you'll get feedback on the answers to your questions, and it can help identify when you're being overly optimistic. 

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