Budgeting · April 01, 2021

Refining Your Financial Decision-Making Process for Large Purchases

Big financial decisions—like buying a car, taking out a mortgage or making a big-ticket purchase—are exciting, but they can mean dipping into your savings or taking on new loans. Because significant purchases often have long-term implications, it's important to do your homework first. Having a solid financial decision-making process built with your long-term goals in mind can help you plan for a large purchase.


Before looking at price tags, start by asking what motivated you to think about a particular purchase. Did something in your life change, such as a new job or a baby on the way? Did your car break down and the estimated cost of repairs is prompting you to consider buying something new? Is this purchase what you need to spend money on right now, or would it be better to hold off until prices drop or your savings grow? The goals and life events that are motivating your interest in this big purchase will help drive your decision-making.

Find an approach that works for you

Everyone's life is different, and so are our priorities. That's why it's important for your financial decision-making process to reflect the way you approach life.

However, there's one principle that applies to just about everyone: consistency. If you use the same guidelines or rules each time you make a large purchase, chances are you'll do a better job of sticking to your personal philosophy on spending versus saving. The rules don't need to be highly complex, but they should remain consistent and reflect your long-term financial goals.

Start by assessing the impact of the item on your budget. Consider the effects on your savings and future spending—remember, buying a large item may mean paying for it over time. In addition to paying off a loan, you may need to reduce other household expenses like takeout meals or monthly cable streaming services.

Your financial decision-making process might include some or all of the following factors:

  • Income and expenses: Review your family budget to determine how an additional expense will affect household spending. Will you need to reduce other expenses to meet your savings goals? If your income has recently increased, is the raise enough to cover the new item you'd like to purchase?
  • Timing: Research the seasonal pricing for vehicles, electronics or appliances to help pin down the best time to buy, possibly right before new models are introduced.
  • Related expenses: If you purchase a high-end PC, you may also want to buy new software or an extended warranty. The costs of buying a home aren't limited to a monthly mortgage payment—you'll also need to cover homeowners insurance, taxes, maintenance and utilities.
  • Loan terms: Shop around for the best loan terms and pricing. Interest rates, the length of the loan and any additional fees charged should all be included in your financial analysis.
  • Taxes: Don't ignore the added cost or potential tax benefits of a significant purchase. Sales tax, if applicable, increases the overall cost of a major purchase. Homeowners will also need to add property taxes as an annual budget item. If you itemize deductions, mortgage interest can be used to offset your income on your federal tax return and may lower your tax bill.

Once you've researched the purchase and reviewed your financial situation, you can complete your analysis by considering non-financial aspects such as time commitments, lifestyle changes, personal needs and preferences.

Weigh the potential pros and cons

Even when a large purchase makes sense from a financial standpoint, additional pros and cons might come into play. Buying a house is a significant goal for many, but if you're considering a job relocation in the next couple of years, the costs might outweigh the benefits. Calculating whether to rent or buy along with any expected expenses can help you decide whether to become a homeowner in the short term. Alternatively, if you're planning to start a family, you might want to prioritize saving for a larger vehicle to accommodate everyone. If you prefer to drive the newest model with the latest safety features, you may prefer to lease a car rather than buy one.

Large purchases are individual decisions that can be affected by a wide range of factors, including personal finances, current needs and long-term goals. There won't be a one-size-fits-all answer. Establishing a set of guiding principles can help you arrive at the best possible conclusion, given your budget and priorities. If you're unsure how to work through the decision process for a significant purchase, the experts at your bank can offer a professional perspective and help you choose the right path.

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