Life and Religion
|Ask a few questions before blowing your tax refund|
|Do you really need what you want?|
|Published Friday, March 8, 2019 12:27 pm|
When you receive a large tax refund, it may be tempting to buy something nice to have, even though the money could be used to shore up your financial situation. Here are a few questions to ask that might help you decide whether a major purchase is really worth it.
1. Why do I want it?
Maybe you've worked hard and think you deserve to buy something you really want. That may be true, but are you certain you're not being unduly influenced by other factors such as stress or boredom?
Take a moment to think about what's important to you. Comfort? Security? Safety? Status? Quality? Thriftiness? Does your purchase align with your values, or are you unconsciously allowing other people (advertisers, friends, family, neighbors, for example) to influence your spending?
2. How will buying this now affect me later?
When you're deciding whether to buy something, you usually focus on the features and benefits of what you're getting. But what are you potentially forgoing? When you factor this into your decision, what you're weighing is known as the opportunity cost. If you buy a new car, will you have to give up this year's family vacation to Disney World? Considering the opportunity cost may help you evaluate both the direct and indirect costs of a purchase. Ask yourself how you will feel about your purchase tomorrow, next month, and next year.
3. Can I really afford it?
Whether you can afford something depends on both your income and your expenses. You should know how these two things measure up before making a purchase. Are you consistently charging purchases to your credit card and carrying that debt from month to month? If so, this may be a warning sign that you're overspending. Reexamining your budget and financial priorities may help you get your spending back on track.
4. Do I really need it today?
Be especially wary if you're buying something now because "it's such a good deal." Take time to find out whether that's really true. Shop around to see that you're getting the best price, and weigh alternatives. You may discover a lower-cost product that will meet your needs just as well.
Buying something can be instantly and tangibly gratifying. After all, what sounds more exciting: spending $1,500 on the ultra-light laptop you've had your eye on or putting that money into a retirement account? Consistently prioritizing an immediate reward over a longer-term goal is one of the biggest obstacles to saving and investing for the future. The smaller purchases you make today could be getting in the way of accumulating what you'll need 10, 20, or 30 years down the road.
Joyce Palmer is CEO and managing partner at JP Financial LLC in Charlotte. Telephone: (704) 543-6269.
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