Dave Ramsey: Ask These 5 Questions To Determine If You Can Afford a Big Purchase

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Knowing whether or not you can afford something is tricky, especially when it comes to major purchases like a car, house or vacation. Even if you’re thinking about buying something less expensive, you might still be wondering if the purchase truly fits in your budget.

On the Ramsey Solutions blog, Dave Ramsey — one of our Top 100 Money Experts — shared an article on the five questions you need to ask in order to determine if you can afford to make a big purchase. Check it out.

SMART Spending

According to Ramsey, the best way to determine whether you can afford something is to follow the “SMART” strategy, which stands for self-awareness, motive, affordability, research, and timing. Here’s how it breaks down.

1. Self-Awareness: Will This Add Value to My Life?

Ask yourself whether or not you’ll actually use the item — whatever it is. Something that will end up in the back of a closet somewhere and gather dust or clutter your space might not be worth the money, even if you have the money to buy it.

Make sure whatever you’re purchasing is going to add true value to your life. If you’re not sure, or if the answer is no, then hold off on getting it until things change.

2. Motive: Am I Buying This for the Right Reasons?

Before purchasing anything, but especially if you’re looking at a big-ticket item, consider your motive or reason for wanting it.

One common money mistake people make is that they compare themselves to others. If you’re thinking about buying something because someone on social media said you should, or because your neighbor bought something similar, it might not be the best decision for you.

As Rachel Cruze pointed out in another blog post, comparing yourself to others can lead to overspending, negative thinking, and a higher likelihood of anxiety or depression.

3. Affordability: Is This in My Budget?

The simple definition of something being affordable is that you can buy it without needing a Buy Now, Pay Later (BNPL) plan or a loan to finance your purchase. You can simply pay in cash and walk away without stressing about whatever it is you bought.

Ramsey takes this a step further by indicating that you should also consider your budget as a whole. If mathematically you can’t afford something right now, then you’re probably better off waiting until you can.

4. Research: Is This the Best Option, Retailer and Price?

Before deciding to buy something, ask yourself whether it is the best option available. This can limit impulse purchases, which can also keep you from spending money on things you don’t truly want or need. It can also help you make smarter spending decisions and prevent buyer’s remorse.

To that end, Ramsey suggested doing your research before making any major decisions. Shop around and compare multiple prices and brands until you find the lowest price possible — with the best quality. Only then should you buy whatever it is you’re interested in.

5. Timing: Is Now the Right Time To Buy It?

Last but not least, ask yourself whether now is the best time to make the purchase. Just because you want something right now doesn’t mean you should buy it. Depending on what it is, you might be better off waiting until it goes on sale or until you can save up enough money to buy the item in cash.

If you have other expensive financial obligations on your plate, waiting to make a big purchase could be the best option for you.

Determining If Can Afford a Big-Ticket Item

If you’re still not sure about whether you can afford that major purchase, Ramsey suggested the following:

• Be patient. Instead of buying what you want immediately, set up a waiting period of a few days, weeks or even months. This will give you time to determine if you really want or need the item.
• Create a sinking fund. A sinking fund lets you set a specific, realistic amount of money aside each month that can be used for a particular purchase. Once you’ve saved up enough money, you can then buy the thing without stressing about whether or not you can afford it. You can even set up multiple sinking funds for different things — like a vacation, wedding or house.
• Increase your income. This could mean getting a side gig, asking for more hours at work, or switching to a higher-paying job.
• Cut expenses elsewhere. Reducing your expenditure frees up more money in your budget that can be used for a big-ticket item.
• Create a realistic budget. With a proper budget, you’ll know if you have enough money to make a large purchase. If you don’t, you’ll be able to see which areas you can cut back on and where you might need to improve financially.

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