If you want to cut back on your spending then taking a moment to think through a few set questions can give you the breathing space you need to make the right decision.
Here are the questions I work through before spending anything above £30.
1. Is it worth the work?
The amount of money something costs is not necessarily the best way to judge whether or not you need it. The high price of big ticket items like cars risks warping our view of what’s an acceptable amount to spend.
So try to not look at the price tag alone. Instead, work out how many hours of work this purchase is going to cost you and ask whether that’s worth it. Don’t forget to cut tax off your hourly rate – that can be a big shock.
2. What’s the opportunity cost?
Opportunity cost is a basic economics concept, but somehow it’s all too easy to forget. To put it simply, when you buy one thing, you have to forego something else.
If you buy a £5 box of Thortons, you can’t buy 29 and a half Freddos. Use this logic on your other spending; it can really shift your focus. For example, if you buy that laptop, you probably can’t afford that holiday.
Like working out the number of hours work a purchase costs, this really shifts your focus. Do you still want X if it means losing Y and Z?
[Related link: Get money back every time you spend with a cashback card]
3. Is this your priority?
Impulse buys are exactly that, impulses. They are rarely the most rational decisions we make. That’s why stepping aside to evaluate the purchase is so important. Ask yourself whether this really is a priority and why.
Only proceed if you are confident that this purchase fits with your main goals and plans. For example, if your main goal is to become debt-free then that Xbox probably isn’t a priority.
4. Are you clear-headed?
We’re most susceptible to impulse purchases when we’re tired, hungry or a little under the weather. So it’s a bad idea to go shopping if you’re not feeling 100%.
Before you make a big purchase, think about how you feel. If you recognise that you’re not at your best then stop. Go and grab a sandwich or come back to the decision another day. There’s nothing worse than regretting a big purchase because you weren’t in the right frame of mind to shop.
5. Are you being pressured?
If a sales person is good at their job then you won’t necessarily feel that they’re being pushy. That’s another reason it’s so important to pause and reflect before making a big purchase. Take the time to think carefully about the package a salesperson is offering and to research whether it’s as good as he or she claims.
Also, remember that it’s not just salespeople that can pile on the pressure. Deadlines, like sales or one-day offers on websites like Groupon can hurry you into a purchase that you’re not ready for. Always give yourself time to think.
6. Is this the best deal?
There’s so much competition on the high street and online that you should always question whether or not you could find a better deal.
It’s so easy these days to compare prices using the internet. If you’re out shopping and you have a smartphone then it makes sense to never buy anything expensive without searching the net for a better deal first.
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7. Can you afford it without credit?
Buying stuff on credit increases the cost and you should factor that into the price. For example, if you pay £1,000 for a sofa but leave it on a credit card charging 19%, you’re going to pay a lot more and you need to factor that into the price.
If you only tend to make the minimum repayments then you could end up paying for your purchase several times over.
Always work out the credit cost of a big purchase and then ask yourself if you can still afford it.
[Related feature: How to budget like you're broke]
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