How to Decide if You Can Afford a Purchase

1. Is the Purchase a Need or a Want?

The first thing to consider is if this is an essential purchase. If it is, you’ll probably need to find a way to make the numbers work. That’s not to say that your wants aren’t important—if there’s room in your budget and your basic needs are met, the purchase might be worth it to you.

Needs

These are costs related to your basic needs, health and safety. Ignoring them would likely affect your well-being. Essential expenses include:

• Your rent or mortgage payment
• Utilities
• Emergency home repairs
• Basic clothing
• Health care
• Transportation
• Debt payments
• Insurance

Wants

These things aren’t essential to survival, but they probably make life more enjoyable. Think in terms of:

• Eating out
• Traveling
• Entertainment
• Subscription services
• Luxury goods and services
• Hobbies
• Lifestyle items

2. Do You Have Enough Money for the Purchase?

If you aren’t sure if you can afford a purchase, look at your finances and consider if:

• You have money set aside for your upcoming bills.
• You’ve allotted money in your budget for miscellaneous purchases that may pop up.
• You have cash savings you can draw on to cover the cost.
• You won’t overdraw your bank account if you make this purchase.
• You don’t expect this purchase to cause financial stress.

A strong budget is one that has room for essential bills, flexible spending and financial goals. Your income and regular monthly expenses play a key role. Tracking your spending and choosing the right budgeting plan can help ensure that you have enough money for what matters to you most. Keeping your money in a high-yield savings account can make it grow faster.

3. Can You Find a Better Price?

If you’ve decided you want to move forward with the purchase, see if it’s possible to get a better deal. Below are some potential jumping-off points:

• Get several quotes. Whether you’re fixing your car or arranging a home repair, collect multiple quotes from different service providers.
• Look for sales. When making a big-ticket purchase, shop around and compare price points. Also see if you can time your purchase to align with sales and promotions.
• Book ahead. If you’re planning a trip, be sure to book your flights in advance and prepay your hotels for discounted rates. You can also save on travel by using a travel rewards credit card that has a welcome bonus.
• Price out insurance. Consider reshopping your home and auto insurance policies. You can do the same with your health insurance during open enrollment.

4. Will the Purchase Affect Your Financial Goals?

This relates more to nonessential spending. Just because you have room in your budget to make a purchase, that doesn’t always mean it’s the right move. Your long-term financial goals should also be a factor. These can include:

• Building your emergency fund
• Paying down debt
• Saving a down payment for a home
• Setting money aside for your kids’ college education
• Saving for retirement
• Padding your travel fund

Saying yes to a large purchase today could impact your ability to work toward those goals—especially if you have to take on a new monthly debt payment to finance it. It comes down to prioritizing what’s most important to you since achieving big financial goals usually doesn’t happen overnight.

5. If You Must Incur Debt, Can You Get Creative With Financing?

If you’re up against a big expense you can’t cover, you may have to finance it. Finding creative ways to do this can help you save money in the long run.

• Look into a balance transfer card. This type of credit card offers a temporary low or 0% introductory APR on transferred balances. You could use a regular credit card to cover the purchase, then transfer the balance onto this new card. You can usually avoid a high interest rate if you pay off the balance before the introductory period ends.
• Consider store credit cards. You might be able to lock in discounts, special financing options, free shipping and other benefits if you use a store credit card. That could be a good option if you’re purchasing furniture or essential home items.
• Get creative with medical debt. If you encounter a large medical bill, ask your health care provider if you can go on a low- or no-interest payment plan—or an income-driven repayment plan. You can also try negotiating your costs or looking for charity care programs.

How to Save up for a Purchase

If you have some time before you’ll make the purchase, you could start saving for it now. That might look like:

• Creating a sinking fund where you set aside money every month to put toward the purchase
• Meal planning and cutting back on dining out
• Reducing your household expenses
• Picking up a temporary side hustle
• Trying a savings challenge
• Cutting your utility bills

The Bottom Line

Deciding if you can afford a purchase isn’t always easy. Consider your budget, cash savings, financial goals and whether it’s an essential purchase. If you do decide to move forward, consider how it fits into your overall financial health—especially if you’ll be assuming new debt.

Being strategic about how you finance a large purchase can help you save money on interest and keep your credit going strong. You can check your FICO Score and credit report for free with Experian.