We all go through the dilemma of asking ourselves, Should I purchase that shirt? or Do I need those jeans, or even Should I buy the new phone that came out? Making an impulse decision based on wants can lead to a long path of financial mistakes. Purchasing something because you want it is not necessarily a terrible thing – it is good to reward yourself; however, it is necessary to control compulsive buying.
Basing your purchases on wants instead of needs can take away from potential wealth in a heartbeat. I always ask myself questions before I make a purchase:
A real-life example that I currently face is purchasing a vehicle for myself. I’ve been driving my current car for five years and with it approaching 200k miles, it probably has less than a handful years of life left in it. When my career begins next fall, I will need a dependable vehicle to meet traveling demands. Therefore, a new car becomes a need for safety and efficiency, something that will last longer than an unpredictable handful of years
One thing I have to make sure is setting a budget in coordination with my income. But before I get ahead of myself, it is necessary to use the checklist. Do I need the vehicle? Yes. Will it have a long, useful life? Yes. Will there be a salvage value? More than likely, yes.
An unnecessary purchase can damage your opportunity for wealth. My younger brother orders wrestling Pay Per View every month, which ranges from $45 to $60, and sometimes there can be two in per month. For this scenario, let’s say there are 13 Pay Per Views per year at an average rate of $48; that’s $624 per year. You can actually view the matches online for free on a few various websites after the Pay Per View has aired.
Referring back to the checklist: Do you need this? If your answer is somehow yes, remember that all you have to do is wait a few extra hours to get it for free. Do you have a long useful life from the purchase? You’ll get three hours out of it and then it is over. Do you have a salvage value after you have purchased it? No, there is absolutely no value after you have purchased it; after three hours the vale is gone.
I don’t want to say this is a stupid purchase. The way I would go about purchasing is to have a group of viewers split the cost, which can cut expenses drastically, dropping your yearly $624 splurge to $104 or less.
The possibilities of balancing funds can create a huge difference in the amount of wealth you build. You do need to enjoy life, but there is a responsible way to do it. You wouldn’t drive to California and back by yourself and spend hundreds of dollars on gas, when you can invite two or three friends and spend a fraction of the cost, would you? Investing that $624, for example, in the stock market at the beginning of every year for five years would amount to around $3,700.
Before you indulge in the newest must-have, I recommend weighing the alternatives and buying on needs rather than wants, or even simply finding the most effective way to purchase on wants.