How to Make Good Purchasing Decisions

A video with advice on how making a good purchasing decision requires buying the things you need before the things you want

When you don’t track your money, it’s easy to spend what you don’t have. This lifestyle can quickly lead to financial worries, such as a lack of funds during emergencies, and an inability to pay your bills.

However, you can help yourself become financially savvy by learning how to make good purchasing decisions.


Consider Wants Versus Needs

Good purchasing decisions stem from buying the things you need before the things you want — but what’s the difference?

Necessities include food, water, clothing, and shelter. It’s essential to cover costs like rent or mortgage payments, as well as grocery bills, to meet you and your family’s basic needs. Make a list of what you need to pay each month to determine your financial obligations and don’t forget to set aside money for savings or an emergency fund. Once you meet these needs and savings goals, you can spend money on the things you want.

Ask Yourself Some Questions

If you find yourself tempted to make an impulse purchase when you’re out shopping, it’s essential to ask yourself some pertinent questions.

  • What will you do with the item?
  • How often will you use the item?
  • Can you borrow the item instead?
  • Is now the best time to buy the item?
  • Will you still want or need this item in a year from now?

These questions will help you determine if the item you’re considering is a good purchasing decision or something you should put back on the shelf.

Look Up Your Credit Score

If you plan to open a new credit card or line of credit to finance your purchase, be sure to know your credit score before you apply for a loan. This number, which ranges from 300 to 850, can help creditors determine your borrowing limit and interest rate. A higher score makes it easier to get a credit card, get approved for a loan, and rent an apartment.

Consider Your Current Savings

Before you consider taking out a loan for a purchase, consider your current savings. Is this purchase something you’ve been planning and saving for? If so, it makes sense to use the money you’ve set aside for this purchase, as long as you’re staying within the original budget you set for yourself.

Whether a purchase is smart or not depends on your financial situation. Even if you’ve been saving for an item, you have some things to consider before taking the plunge. For instance, you’ll want to consider if making the purchase will deplete your savings, leaving you without much for emergencies or unexpected costs, or if you still have a separate savings accounts or emergency fund that can serve as a buffer.

For example, say you have around $5,000 in savings and want to purchase a $4,500 boat. Is it wise to deplete your savings, leaving only $500 for potential emergencies? Probably not. However, if you had originally budgeted to spend $4,500 on the purchase and have a separate fund for future costs or emergencies, you might be comfortable spending the money. If it will deplete your savings, you may want to wait until you have more saved or consider  a less expensive model that – for example, one that costs only $1,500,— and still leave you with $3,500 in savings.

how to make good purchasing decisions

Calculate Cost-Per-Use

Determining cost-per-use is an excellent way to calculate an item’s value and make good purchasing decisions. To figure this number out, divide the item’s price by the estimated amount of times you plan to use it.

For example, say you buy a new television for $365 and plan to use it every day of the year. As a result, the cost-per-use is $1. If you continue to use that TV in the same way for a second year, the cost-per-use drops to $0.50. Items that see a lot of usage, such as vehicles and video game systems, often offer better cost-per-use than those that are left untouched.

Think About the Benefits

Before you make a purchase, consider all the pros — and cons — that come along with the item. Will your purchase boost your productivity or save you money? For example, a faster computer may help you complete tasks quicker, leading to better efficiency and more time for other projects. Solar panels, which come with high installation costs, can cut monthly utility bills.

On the flip side, consider additional costs associated with purchases, too. A car, for example, is a necessity for many. Yet the purchase requires paying for monthly insurance premiums, gasoline, and routine maintenance.

Spend as Little as Possible

You’ve decided to make the purchase. Before you step up to the register, however, consider if you’re in the right store. Prices on items can vary drastically from place to place, and shopping around can save you big bucks. If you prefer to purchase from a specific store, ask about their price match policy if you find the item listed somewhere else for less.

Conversely, consider if you can buy the item used. For everyday purchases, look around at thrift or consignment stores. For vehicles, head to a used car lot or search for people selling personal cars in the newspaper. You can also peruse reliable local resale websites to find time-sensitive deals.

Practice Good Purchasing Decisions

As you get into the habit of considering items such as cost-per-use, purchasing options, and impact on your overall finances,  it’ll become easier for you to feel confident in your purchasing decisions. And the better you become at making purchasing decisions, the better your finances will be in both the short and long term.

To find more money management tips and resources, visit our WalletWorks page.

The content provided in this publication is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Some products not offered by PSECU. PSECU does not endorse any third parties, including, but not limited to, referenced individuals, companies, organizations, products, blogs, or websites. PSECU does not warrant any advice provided by third parties. PSECU does not guarantee the accuracy or completeness of the information provided by third parties. PSECU recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.