Big purchases come around every now and then. What constitutes a big purchase for many people, and rightly so, is any purchase that has the potential to impact cash flow. Payments that fall in this category range from the absolute essentials such as rent and school fees to more discretionary purchases such as gadgets and jewellery. As we navigate the current global health crises, there are many questions about the economy and irrespective of the analyst report or media coverage you turn to, one thing is evident, it is a time to be moneywise.
The next logical questions are perhaps – what does it mean to be money wise? Should you spend only on the absolute necessities or can one indulge in discretionary expenses? As you can imagine, the answer to these questions is not straight forward and would differ from person to person. However, as a matter of guidance, here are 2 questions you should be asking before making any big purchase.
Do you really need it? As the world goes more digital, particularly in response to the directives to stay at home and observe social distance, what constitutes a want and a need is also changing. For example, as many organizations work from home and children are home schooled, home renovation, furniture and electronics (such as laptops, tabs, printers and phones) may increasingly shift from merely being a want to a need. Also, anecdotally, there is a surge in fitness and exercise, cooking, gaming, screen time and e-commerce activities as many people seek ways to stay active, relieve stress and bond with family. As a result, home theatres, kitchen accessories and fitness equipment may start to make a way towards the top of your list. If you find yourself in this position, financial prudence necessitates that you make a list and prioritize in order of increasing need.
What are your options for financing? So now that your list is done and frankly speaking, everything looks quite important. What next? How do you finance? As noted earlier, what makes big purchases big is not necessarily that the ticket price is out of your spend range, but that they tend to create cash flow problems. In simple terms, you can afford it but you just can’t afford it right now. There are a number of ways that one can approach this:
- Wait: In this option you simply start to set aside any excess cash you have till you have enough to afford the big purchases on your list.
- Borrow from the past: You may decide to take money from your savings/emergency funds. The problem is that if you get used to this, you may deplete your reserve overtime. Needless to say, this is generally a bad idea seeing that the essence of such funds is for unforeseen incidents. The operative word here being unforeseen, you really don’t want to be caught unprepared.
- Borrow from the future: Personal loans and credit cards help bridge fund gaps and should definitely be explored. Check here to read up on factors you should consider before taking a personal loan.
- Spread your payment: this is the hybrid solution that doesn’t require you to wait, borrow from the past or borrow from the future. You simply, pay as you go. But that’s not the best part, some providers offer this option at zero interest rate on instalments spread over 3 to 48 months. You should take advantage of payment plans and use them for items covered by such plans and then use other funding alternatives (credit card, personal loans etc.) for needs not covered in this category.
There is usually a one-time processing fee which is typically a percentage of the price of the item purchased. Finally, you should ask your provider if there are penalties for early repayment.
If you are looking to spread the payment on your purchase, you may want to consider Citi’s Payment Plans. You can avail this service for specific brands at 0% Easy instalment plan and all other brands that are not part of the list at a specific percentage set by the bank. Payments can be spread over 3 to 48 months.