June 9, 2011

Considering the Cost of Car Ownership (With Calculator)

car-cost-of-ownership

Thankfully, not actually my car

I bought a beater of a car back in August 2010. It’s a 1997 Nissan Maxima, so it’s 14 years old now. While it runs fine, for the most part, it has the standard array of old-car problems: it’s loud (for unknown reasons), it doesn’t look very nice, and it’s not exactly a joy to drive. I went with the ultra-cheap option because I thought it would make owning a car cheap. But I think the $1,000 price tag may have fooled me a bit, since I’ve already put in another $1,400 in repairs in. After all the extras I pay for, it made me wonder: how much does it really cost to own my car?

While I’ve only had the car for 10 months, I’m not exactly sure what it has cost me so far and what it costs me in total each month. I don’t think most people are aware, either, so I figured this would be an interesting experiment for all of us to find out. Below I’ve added up all the actual costs I’ve incurred and broken them down into appropriate categories. Here’s what the car has cost me so far:

One-time fees

Purchase = $1,000

Car stereo (was missing when I bought the car) = $118

Sales Tax = $2,000 value (double than what I actually paid, woohoo!) x 6% = $120

Temporary registration fee (I needed this so I could drive it to an inspection) = $20

Title fee  (I needed a new title produced for the car) = $25

Licensing (required for registration in CT) = $66

Total one-time fees =$1,424


Irregular costs

Repairs and maintenance #1 = $425

Repairs and maintenance #2 = $625

Repairs and maintenance #3 = $350

Total irregular costs = $1,400


Regularly-recurring costs

Monthly payment = $0 (I paid cash)

Registration = $75 = $3.13/month

Emissions test fee (every 2 years) = $20 = $0.83/month

Insurance = $62/month (I have bare-bones insurance with no collision)

Gasoline (average) = $60/month (I only drive about 500 miles a month)

Parking (average) = $15/month

Other maintenance (light bulbs, oil, washes, etc – average) = $15/month

Taxes (variable, yearly) = $84 for 2010 = $7/month

Monthly price of regularly-recurring costs (ongoing) = $162.96


Total paid (through 10 months of ownership) = $4,454 or $445 per month


Assuming yearly repairs of $1,000 (it’s an oldddd car) = $83.33/month

Realistic ongoing costs (including estimated repairs) = $247.21/month


Positives

For ongoing monthly costs, $243 seems manageable, but it’s nothing to scoff at, either. It’s about what I expected, too, so no surprises here.

I’ve estimated yearly repairs at $1,000, although I’m not sure I’d put that much money into this car at this point.

$243 is probably about what I what spend a month if I was going to ditch the car and rely on Zipcar, Amtrak trains, and buses to get aroind. I enjoy relaxing while someone else drives my bus or train, but it’s still more convenient in a lot of cases to own a car.

 

Negatives

While I know it’s all sunk costs at this point, it sucks to think that I’ve paid $445 a month so far to drive my crappy car. If I could take that back and forgo buying a car altogether, I probably would.

I’m also a bit alarmed that it still costs this much, and I don’t make monthly car payments (I don’t have to pay Wells Fargo auto loans anymore). Anyone that has an auto loan can expect to see their monthly costs increase by several hundred dollars.  That’s before insurance, which I’m sure will be higher than my $62 monthly payment. If I were to finance a new car, my monthly costs could easily triple.

I’ve also merely estimated the yearly repairs cost for a car. Repair costs have the potential to be a lot higher, which is alarming to think about. I don’t like this uncertainty when owning a car, and that’s another reason I’d consider living without one.

 

Car Ownership Calculator

I calculated all of this manually, but you can also try my car ownership calculator that I created in Google Docs. To calculate your car ownership costs, make a copy of the spreadsheet and fill in the yellow cells with costs for your car. The spreadsheet will calculate your total and monthly costs (on average) that you’ve paid so far for your current car, as well as your monthly costs going forward.

Click here to access the car ownership calculator

What does your car cost you? Have you considered giving up a car altogether?

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photo by: mindfrieze

Filed Under: Spending 8 Comments
June 6, 2011

Amtrak Discounts to Make Train Travel Cheaper

amtrak-discountsI really like riding trains (which mostly consists of Amtrak), and I think it’s an extremely underutilized mode of transportation in the U.S. My favorite reasons: It’s a smooth ride and less noisy than an airplane. I don’t have to worry about security delays like I do when I’m flying. The seats are more comfortable and it’s easier to move around. The views are impressive, too. But the major problem I have with trains: it’s more expensive that I’d expect. The minimum cost to travel from New Haven, Connecticut to Washington, D.C. by Amtrak is about $120 round-trip. This is just the minimum – if you aren’t luck enough to get this fare, the price can exceed $200.  Compare this to taking a bus for about half that at $60 round trip.
Since I’d strongly prefer to take the train over the bus (I don’t have to transfer in NYC and it’s a shorter ride by 90 minutes), I’ve looked around online to find what I can to make Amtrak rides cheaper. Here are some tips I’ve found:
Book early. It’s nearly a universal rule that the earlier you book on Amtrak, the better deal you’ll get. The savings can be substantial (think about half the cost for booking early versus buying a ticket on the day of travel). As an example, Amtrak is offering 20% off the lowest fares if you book before June 24 and travel in September to November. If you’re planning a trip, but aren’t 100% sure, book anyway. Amtrak doesn’t charge fees for changing reservations (as long as you do it at least one hour in advance), you’re simply responsible for changes in price.

Travel between Monday and Thursday or on Saturday. Amtrak fares are lowest on these days, and Amtrak advertises weekly specials that are available only on certain days with certain restrictions. If you can fight through some of the fine print, you can get these deals.

Sign up for Amtrak rewards. You can earn points for every Amtrak trip and eventually earn free travel, just like frequent flier miles. Signing up is easy and free. Just go to the Amtrak Guest Rewards sign up page and fill out the simple form. If you travel within 90 days of signing up, Amtrak will give you 500 points to start. In the Northeast, a free one-way trip is costs 3,000 points. This might take a bit of work to get there, but it’s worth it if you’re going to make the trips anyway.

Get the Amtrak credit card. Like most rewards card, the Amtrak Guest Rewards card offers a sign-up bonus as well as points for every dollar you spend. The initial bonus is 6,000 points, which is enough for a round-trip for one zone (and possibly two round-trips on alternate itineraries). The value of these bonus points can be a few hundred dollars alone. There’s no requirement to use the card after earning the initial reward if you don’t want to, but you can continue to earn Amtrak rewards points and earn more free trips if you’d like.

AAA discount. If you’re an AAA member, use your card to get a 10% AAA discount on just about any trip.  This is good towards the lowest advertised fare, which often isn’t the lowest fare offered if you book really early. This is useful if there aren’t any other better discounts offered.

Special discounts for students, seniors, children, etc. Amtrak offers many regular benefits for all of the following:

  • Children – Kids 2 through 15 years – 50% discount. Infants under 2 ride free.
  • Seniors – 15% discount
  • Military – Active duty US military personnel, their spouses and their dependents – 10% discount
  • Student Advantage – 15% discount with Student Advantage card or International Student Identity Card.
  • Veterans Advantage – 15% discount with Veterans Advantage card.
  • Group and Convention Travel – groups of 20 or more may be eligible to receive discounts up to 20%

Check the list of Passenger discounts here.

Advertised specials. If the other deals weren’t already enough, Amtrak has another page of advertised specials. These are often specials pertaining to certain routes or particular itineraries. If you check pack here now and then, you might find something relevant for your trip of choice.

Multi-ride tickets. Amtrak offers tickets for multiple rides to the same destination.  Just to compare to other fares, I checked the cost of a 10-ride pass from New Haven to Washington, D.C.  It costs $872 for 10 rides and must be used within 45 days. At about $87 a ride, this doesn’t seem like a great bargain.  You can also get a monthly pass for unlimited travel for a whopping $1,962. You’d have to do around 20 one-way trips in a month to make this worthwhile.  These probably aren’t the best deals, but it’s worth checking out for repeat trips and pricing out the options.

USA Rail Passes. Amtrak also offers USA Rail Passes, which are also good for multiple rides, but can be used for various destinations instead of repeat trips to the same two spots.  This is ideal for traveling around the U.S. within a relatively short period of time. For an 8-segment trip (used within 15 days), the cost $389, which is about $47 per segment. This could be a good deal, depending on your segment length and cost. There are 30- and 45-day options available, too.

Just like airlines, traveling on Amtrak can be a bit complicated and it’s not always clear what your best options are. Be sure to check through all these different options before booking or call Amtrak (1-800-USA-Rail) to discuss your best options with an agent.
Do you often ride by train? Do you have any other tips or resources for savings on Amtrak?

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photo by: besopha

Filed Under: Spending 7 Comments
May 17, 2011

8 Frugal Ideas I Hate

frugal-ideas-i-hate-laptopI know I talk a lot on here about saving money. Yes, part of that is being “frugal,” but I honestly hate that term. It’s not sexy (and never will be), and a lot of people associate it with being cheap. I know “frugal” doesn’t necessarily mean “cheap,” and I’m not interested in turning this post into a debate on the difference. While I would consider myself to be a frugal person, there are some frugal things that I think suck and I refuse to do them.  Here’s my top 8:

1. Excessively reusing things. This post about frugal food storage made me sick to my stomach. I get what the author is saying here, but I don’t think this has much significance in terms of where you’re really saving money. I think it’s simply a waste of time to spend so much time thinking about Tupperware (just like it was a waste of time for me to read that post to begin with).  My Tupperware strategy is simple: I spend maybe $10 a year on resuable containers that are durable, clean, and suit just about all my needs.  End of Tupperware discussion. Apply the same logic to reusing other things and decide if it’s really worth it.
2. Clipping coupons. While I have to admit that I haven’t extensively investigated what I could actually save with coupons, I’m not really interested. First off, I have no desire to search websites or newspapers for coupons and printing them out and all that.  Secondly, I like to eat whatever I want.  Being a pescaterian, I’m a bit of a picky eater.  I’m also a bit of a health nut, so I’m simply not willing to compromise on what I eat just to save a buck.

3. Buying in bulk.  This is one tip that I hear all the time and have tried using, but I’ve never been satisfied with the results.  I’ve always wasted more food than gained in savings, negating the whole purpose of this strategy.  Aside from eating at that food in time, where the hell am I supposed to store it all? I just find buying in bulk to be more of a hassle than the effort it’s worth.

4. Sacrificing on things I love.  When I truly love something, I’m going to buy it.  I love a great craft beer (just like some enjoy fine wines).  I know if I wanted just any beer, I could drink PBR for a fraction of the price of my local microbrewed goodness.  But I don’t just like drinking beer, I like drinking the best.  Instead of spending $5 on a six-pack of PRB, I’m going to drop $11 on Abito Turbodog or Shipyard Export til the day I die.

5. DIY projects just to save money.  I really enjoy Instructables.  There are many creative ideas to DIY just about anything you can think of.  While I think DIY is great when it’s something fun or rewarding, I’m not going to make things just to save a few dollars. I built this laptop stand myself.  Since I didn’t have the materials handy, I had to go out and by them.  Two hours and $12 later, I had myself a flimsy stand for my laptop. Fail! Maybe I just suck at DIY sometimes, but I’m pretty sure I could’ve just bought this stand online and saved myself a a bunch of effort.

6. Always choosing the cheapest possible option. Simply put, I think you often get what you pay for. I’ve bought cookie sheets for $1 before.  While they worked, the poor quality was evident and I had to replace them soon after. I’m not saying the fanciest and most expensive options are best either (I think the quality is often overstated compared to the price) Choosing the best value, which is often in the middle of the price spectrum, makes the most sense.  You can get decent quality and reliability, and you may save money in the long run with this plan.

7. Cutting back on vacations. If there’s a place I went to spend my money, it’s on a trip in an exotic location. This is why I save money to begin with: so I can enjoy spending it!  Vacationing in Spain, I was glad to pay to taste new foods and visit different sites. I don’t enjoy tourist-trap money pit-type things, but I’ll pay for any experience that’s worthwhile.

8. Saving like crazy instead of earning more.  You can only cut back so much before your quality of life really begins to suck.  I could save a lot by not owning a car, never going out to bars, and never traveling, but what’s the point of living if that’s the case? Instead of focusing on always cutting back, put your energy into increasing cash flow.

While these ideas may not appeal to me, you certainly can save money with online coupon providers such as coupons.answers.com. That’s a frugal idea that I don’t mind recommending.

Bonus: Tracking my spending. Yes, I know that I’m promoting it over here.  But it’s something I find annoying, at least in the current form that I’m doing it (maybe I need to give Mint another shot). Despite my disdain, I’ll keep tracking since I know it’s important to keep my finances in check.

What you and I really need is to go for the big wins – decisions and behavior changes that impact big chunks of money over our lifetime (like Ramit points out in this post about frugality). More on that in this post about “big wins.”

Are there some frugal ideas out there that you hate, too? Let everyone know in the comments.

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photo by: jazzgumpy (with text added by me)

Filed Under: Spending, Uncategorized 21 Comments
April 21, 2011

Simple Steps For Cutting Your iPhone Bill Down to Nothing

iphone-billI probably spend too much time thinking about the cost of cell phones. But there are a couple reasons: you have to sign a two year contract just about every time you get a new phone, and these contracts amount to thousands of dollars (usually at least $1k).

Fortunately (for you), in my quest to finally switch over to a smart phone, I’ve done some research to figure out how I could truly cut down the cost of owning one. Just to keep it simple, I’m going to only talk the iPhone here, and leave other phones out of it for now.

iPhone Cost and Service Savings Breakdown

Save with free texting (save $120-$480 over two years)

Texting plans seem cheap, ranging from $5-$20 a month, but that adds up over the course of two years.  Now, you no longer need to send texts through your service provider.  Instead, you can now download different apps like WhatsApp ($0.99 in the App Store) or TextFree (free-$4.99).  These apps let you send messages to your friends for free.  The only catch is that they also have to have the same app installed on their smart phone.  While this may seem inconvenient, these programs are gaining a lot of attention and popularity (as I write this, WhatsApp is #18 on iPhone Top Paid Apps).  If you’re really disciplined, you can prevent texting through your carrier altogether, or pay $0.20 per text if you’re in dire need.

Texting cost = $0/month

Save on data with AT&T (save $240-$1,080)

The 200 MB plan will suit average iPhone users perfectly fine.  In order to help stay under the data usage requirement, connect to a WiFi network whenever it’s available to avoid using your allotted data from AT&T. WiFi is also faster, so this will create a better user experience, too.

Note that currently Verizon only offers at $30/month plan for unlimited data.  So by choosing the cheapest plan on AT&T, you’re saving $360 on data plans over a two-year contract.

Data cost = $15/month

Save on Voice minutes (save $480-$720)

It’s not possible to get an iPhone without any voice plan.  Most people require voice coverage anyway because, after all, it’s still a phone.  Hopefully you can survive on 450 minutes a month, which will still set you back $39.99 on either Verizon or AT&T.  If you talk more than that, you can save again by using various downloaded applications.  Skype is now available for smartphones.  Its immense popularity on computers has brought it to handheld devices now, allowing calls when there’s a WiFi connection available.

Voice cost = $39.99/month

Buy an older model iPhone (save $150-$250)

AT&T is currently offering the iPhone 3GS for $50.  If you’re fine without the latest and greatest model, this should suit you.  After all, the model is only a couple years old.  The iPhone 4 retails for $199 or $299, depending on the model you choose. Yes, it does have improved features, but if trying to pare down the costs, this is one way to do it.

iPhone cost = $50, one time payment

Decline AppleCare (save $69)

You’re hedging your bets a bit here, but if the goal is to save money, this definitely makes the list.  Plus, extended warranties are often not worth their cost.  After all, the company issuing the warranty probably wouldn’t offer it in the first place if they knew they were going to lose money on the deal.

Declining AppleCare = $0

Employer/student discount (save ~$156)

AT&T offers a monthly discount in their Premier program.  The discount is around 15% off your monthly bill (that’s what I can get through Tufts University), depending on your school or employer.  One catch is that you have to pay $36 up front to activate.  Still, if you followed the guidelines up to this point, you’d still save at least $156 even with the fee included. Verizon also offers a similar discount.

Employee discount = save $6.50/month (after including $36 upfront fee)

Add Up the Savings

Choosing the cheapest option in each category, the iPhone costs only $50 per month, with a 2-year cost to own of $1,208, before any taxes or fees.  A lot cheaper than I thought when I started writing this article!  Of course, this is far from free, but it sounds much more enticing and affordable than the higher end of the spectrum with all the added costs.

If you follow all these guidelines, you’ll save between $1,215*-$2,559** on of your iPhone bill over the course of two years! Even if you were going to choose the cheapest voice plan regardless, you would still save $735 with these suggestions.  There are lots of other add-ons that you don’t need (Bluetooth headset, cases, chargers, etc.) and could consider as savings if you don’t buy them, but I didn’t consider these accessories in my analysis.

Do you have any other tips or apps that help save money? Let me know in the comments below.

(Also, AT&T users: is service really that bad? I’ve heard some say it is, but others seem to think it’s okay, so I’m considering a switch)

* = choosing the next most expensive service option in every category listed

** = choosing the most expensive service option in every category listed

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photo by: James Burrage

Filed Under: Spending 20 Comments
April 11, 2011

After Graduation: Spending Your Newly-Pocketed Money Wisely

After graduationThis post is part of an “after college” series for the launch of my upcoming free ebook “Money After College.”  You can sign up for my email list to receive your free copy when it’s released in early May.

After graduation is an exciting time, emotionally and financially.  You (hopefully) already have a job lined up where you’ll earn more than you ever have in your life.  Perhaps you’ll also receive cash gifts as a graduation present from friends and family, too.  Life is great as you embark on a whole new journey in life. But, let’s come back to earth a bit before you go out right away and grab all the stuff you’ve worked your way through four years of college to get.  After all, you haven’t hit the big time yet.

I’ll admit that I’ve been guilty of going out and spending right after finishing my first four years of college.  I bought a new HDTV and PlayStation 3, which cost me over $1,000 combined.  I also bought some new clothes and other things to “reward” myself.  Before I knew it, most of my graduation gift was gone.  Here’s some tips to avoid the same mistakes that I made.

Resisting big spending mistakes

- Don’t spend money just because you can.  This little blip of income in your life is going to disappear quickly, especially if you start spending money before you’ve earned it.  Before you start spending wildly, realize that just because you’re earning a few hundred bucks a week doesn’t mean that’s all fun money.

- Ask yourself “Would this purchase make sense if I was still in college?” If you were like most college students out there, you probably didn’t have too much money to go around.  You might have eaten ramen or drank Natty Ice (or both, simultaneously) and hope to never have to go down that path again.  Even though you might not want to live like like a pauper any more, you should try to maintain that lifestyle for as long as you can.  It will help greatly in your ability to pay down college debt and save for retirement.

- Plan your purchases wisely. Don’t buy on impulse. I enjoyed my PlayStation for about a year before I got tired of it and ended up selling it (for about half of what I paid originally).  I regret that purchase and would much prefer to have that cash in my savings account right now instead.  If you are planning on making any large purchases (> $100), think about it for at least a few days before buying.

- Don’t go out and buy the brand-new fancy car. Yep, this one gets it’s own section.  I’ve seen it so many times.  If you’re trying to recover from four years of loans (and potentially credit card debt), buying a new car is one of the worst decisions you can make.  If you do need a car, purchase something a few years older that will cost a lot less.  There are lots of benefits of owning a used car.  If you’re living in a metro area where there’s public transportation, Zipcar, or bike access, you might not need to own a car at all.

- Allow yourself a few nice things that you’ve been waiting to buy.  I think all life victories deserve celebration.  Graduating college is probably your biggest accomplishment at age 22, so it’s certainly no exception.  Treat yourself to a nice night out for dinner, a DVD or two, and a book to further help you plan your finances (I recommend Ramit’s I Will Teach You To Be Rich).

- Save some money and start paying down any debt.  Trust me, loan payments are coming at you fast and you’re not going to enjoy it.  If you don’t have loans, there’s going to be a time in the future when you need this money and can use it on something better. Save as much as you can, and you’re making a great decision.

3 Easy Steps to Start

In 3 steps, here’s what I’d do with the first $1,000 after graduation (gifted from family/friends or earned at a job):

1. Have fun with $200.  Do whatever you want with this.

2. Put $300 in the bank in an ING Savings account.  Save this for an emergency or some other important expense in the future.

3. Open a Roth IRA and deposit the final $500 in this account. Research index funds and start investing.

This is a fantastic foundation, which you can build on with a more sophisticated savings and investing strategy.

If you’re about to graduate, how do you plan to spend?  If you’re past graduation (like me), do you have any advice?

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photo by: Werwin15

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Filed Under: After College, Spending Tagged With: , , , , , , , , , , , , , 12 Comments
April 4, 2011

5 Steps To Tracking Spending In Under 5 Minutes

Track SpendingI’m not going to lie: budgeting and tracking your spending really aren’t sexy or fun.  I’ve heard lots of complaints: it’s annoying, it doesn’t really help, and it’s tedious to track where every dollar is spent.  But if you have debt, are constantly out of cash, and don’t know where your all of your savings have gone, tracking your spending is, by far, the most effective way for solving these problems.

You may have tried this before and lost interest or the desire to budget after a short time (I’m guilty of this, too).  A common misconception is that you have to launch an all-out assault on spending by obsessively documenting every single financial move you make.  This is simply not true! Before you complain how you don’t want to enter every receipt into QuickBooks, realize that there are other, simpler options out there to get you on the right track.

Here’s my approach to creating a quick and simple budget that you can manage on less than 5 minutes a day.

1.  Track income and spending in 4 categories.

The object of this isn’t to set up a system and then ditch it when it’s too laborious to work with.  Instead, start simple.  Create 4 columns in a spreadsheet (I recommend using Google Docs) or notebook with the following headers:

1. Income
2. Necessities
3. Fun and Entertainment
4. Investments and savings

Here’s a spreadsheet I created in Google Docs that you can use by saving your own copy (click File then “Make a Copy”). I prefer Google Docs because I can access my spreadsheet from any laptop or phone with an internet connection.

You can set get more detailed with your tracking if you’d like (see step 5), but hold off at this point if you are just starting out.

2.  Place each money transaction into the appropriate column.

Do this at least once a day (so you don’t forget to add things). Use one line for each transaction.

“Income” is simply any money you receive over the course of the month, either through paychecks, money owed, or other sources.  Any money coming in should be counted.

The “Necessities” can be anything that’s a necessity for you to live: rent/mortgage, utility bills, gas/car expenses, groceries, medical expenses, personal care supplies.

“Investments and savings” is any money that you move to a savings or investment account from your checking account.  This could be for an emergency fund, retirement account, or any other money you don’t plan to spend immediately.

“Fun/Entertainment” is anything you spend money on that doesn’t fall into the “Necessities” column.  This may include going out to eat, seeing a movie, or buying a DVD.

Rule of thumb: if you aren’t sure if it goes under “Needs” or “Fun”, it’s probably not a Need.  Be as honest as possible with this step; it’s meant to help you figure out where your money is going.

Write a short description with each entry to give some detail about how the money was spent, such as “lunch at Chipotle” or “book on Amazon.com.”  If you find it annoying to add every single little detail, then don’t.

3.  Check the totals on the last day month.

This can take as little as 5 minutes if you don’t want to spend much time on it.  Your focus is on where your money has been spent and determining if you’re overspending in certain areas.

4.  Use last month’s spending to set some simple budgets for your next month.

Chances are your numbers aren’t right where you want them to be if this is your first month, and you may have spent more than you think you should in the “Fun” category.  That’s okay.  The goal here is to figure out where your money is flowing and to adjust spending accordingly.  The “Fun and Entertainment” category is where you should pay most attention.  “Necessities” should be fairly fixed cost, month-to-month, and you should have monthly savings and investment goals in mind, too.

Be realistic in setting your budget.  If you spent $1,000 on entertainment last month, don’t expect to drop it down to $100 the following month.  Instead, bring your spending down gradually, such as from $1,000 to $900.

Repeat this process each month by continuing to track your spending and updating the budgets as necessary.

5.  Optional – Move on to more advanced tracking of expenses.

Personally, I have a spreadsheet with about 50 cells to track spending.  It’s available as a GoogleDoc template called “Personal Monthly Budget“.  I’ve been doing this since September of last year and noticed a number of trends right from the start.  Spending $100 a month going out to bars with friends is something I need to reduce when it’s eating up 10% of my income.

Before you dismiss this tracking plan, just give it a shot (even if it’s only for a week).  It’s a small step to take that may save you thousands of dollars in the long run. I know it isn’t fun, but it’s truly an effective way to keep track of money and get your finances on track with little effort.

Filed Under: Spending Tagged With: , , , , , Leave a Comment
February 18, 2011

The Secrets of Maximixing Fulfillment From Your Purchases

Buying things doesn’t always lead to the feelings that I hoped they would.  Often times, I feel the excitement of a purchase is the high point, with interest in a new gadget or toy in a steady state of decline the time afterward.  I recently thought about this after reading a chapter in Your Money or Your Life, which instructed you to look at your purchases and determine if it gave you adequate fulfillment. I really like this concept, but I thought I would take it a step further: evaluate fulfillment potential before buying in the first place.

I always want to get the most out of my purchases.  Sometimes it becomes a bit of an obsession for me.  I’ll often spend 30 minutes on Yelp to figure out the best option for a Saturday night meal or heavily research customer reviews on Amazon.com.  But this would be a total waste of time if I evaluated every dollar I spent in this fashion.

At the opposite end of the spectrum, there’s impulse buying, where almost no time or thought goes into the purchase.  Impulse spending is more problematic since 1) a greater proportion of money is probably spent in this way and 2) what is spent is usually on things that garner less reward.

Regardless of your plan to a acquire a new knick-knack, here are questions to ask yourself before you make any purchases, especially pricey ones:

“Will this purchase really change my life?” Obviously if you’re dead set on buying something already, you’re going to be biased.  But if you’re willing to be objective and open-minded, you may think differently.  There are a lot of expensive purchases made under the assumption that it’s somehow going to revolutionize our life for the better.  Often, the effects aren’t long lasting.  I really like my MacBook Pro, but I’m not certain it’s value to me is worth a whole lot more than a cheaper computer. Many small purchases like an DVD or a cup of coffee probably won’t ever change someone’s life (again, being objective here), but that’s not to say you shouldn’t buy these things.  However, I think it does raise some questions as to its importance in your life relative to other things, which leads to the next question.

“Is there something better I could do with this money?” I use this every time when I refuse to buy lunch.  There are tons of other things I’d rather spend that money on: drinks out with friends, dinner with my girlfriend, or even just buying fancier food (like gourmet cheese!) from the grocery store. There are plenty of places to put the money. If you don’t have an automated savings plan, this is the perfect time to find ways to fund savings accounts.  Instead of spending $70 on a pair of shoes, save it for emergencies, vacations, or other adventures down the road.  You’ll be happier when you’ve saved yourself from three different $70 shoe purchases and suddenly have $210 to spend towards a trip to Europe.

“Have I purchased something similar in the past? How did I feel about it then?” I recently made my third car purchase in my life. Looking back to when I financed my second car, a brand-new Hyundai, I felt great about it at first.  New car smell and all, it was great!  But I eventually got sick of the car payments.  With the most recent car, I knew that I didn’t want to make monthly payments again.  I sought out to buy the cheapest car possible this time around, and I paid $1,000 cash for a 1997 Nissan.  While I still don’t love owning a car, I feel much better about spending $1,000 rather than $10,000, and I knew I would feel even better than sinking a lot of money into this purchase.

“Can I really afford this? Will affording this be stressful?” This is a question I find coming up a lot when my monthly budget starts to get tight.  If I’m being peer-pressured into an expensive night out, but I’ve already eaten up all of my fun budget, I know it’s going to take serious sacrifice to make ends meet.  I’m all about fun times, but it’s not helpful later when I realized I’ve spent too much.  That creates stress, and sometimes it’s simply better to say “no” when it’s not affordable.

Looking back at my purchases now, I wish I had asked some of these questions.  I’ve learned several (expensive) lessons, but it’s taught me how to maximize fulfillment and happiness from my purchases.

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photo by: Jason Cartwright

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