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10 Ways to Prepare Yourself for a Big Purchase

Updated on May 4th, 2022
Retire Early

One of the most difficult aspects of making a significant purchase is the mental hurdle you have to overcome. You part ways with a lot of your hard-earned money, you’re taking a risk on a major investment, and you might get cold feet. Finalizing a large financial transaction can cause stress and anxiety for even the most experienced buyer. How can you overcome these obstacles? Here are 10 ways to prepare yourself for a big purchase.

Evaluate Your Financial Situation

Before you even consider buying, you have to perform an honest assessment of your financial situation. Can you afford the purchase with your current income, debts, and other expenses? You should know how much money your household makes in a month and how much you spend in the same timeframe. Make sure you account for all taxes when calculating this number.

Once you have a solid grasp of your finances, you can determine how much money you need to save (more on that later). A thorough evaluation might also reveal that you need to improve your credit score, which ties into the next word of advice.

Develop Your Credit Score

A high credit score/FICO score will help you get lower interest rates on loans, which are often essential for large purchases. You can build a better credit score by applying these fundamentals:

  • Pay your bills and debts on time.
  • Reduce the balance on your credit cards.
  • Stick with one line of credit.
  • Review your credit reports for potential improvements.

These habits tell lenders, business associates, and vendors that you handle your money responsibly. They can trust you to uphold your end of the bargain, increasing the likelihood of a successful transaction. This may take some time, but will help you in your preparations for larger purchases.

Acquire a Loan

With a stable financial situation and a high credit score, you can get a fair loan with a low-interest rate. However, your search can’t take too long. Making multiple inquiries for a loan in a short period can lower your credit score and unravel your hard work. Limit your search to a small group of lenders and compare their loan products.

Make sure you include all purchase expenses when applying for a loan. Demonstrate that you have a full understanding of the purchase’s scope so you can get the best deal possible. Plus, if you need to get a pre-approval letter for your purchase, the lender can provide one for you.

Explore Loan Options

Once you decide on a lender, discuss the various loan options and determine which one fits your needs best. The options vary depending on the product you want to buy, but these are the most common packages for large purchases:

  • Conventional: The best choice for borrowers with good credit scores.
  • Jumbo: Best for borrowers with high credit scores looking to buy an expensive vehicle or home.
  • Fixed-rate: The monthly payment stays the same.
  • Adjustable-rate: The monthly payment can change, but it’s only recommended for people who don’t plan on owning the home/vehicle for a long time.
  • Government-insured: Best for borrowers with low credit scores and insufficient funds for a down payment.

If you manage to get a pre-approval, you will know the maximum amount you can borrow and factor that number into your future plans.

Research the Product’s Market

As you gather your finances and prepare for a big purchase or to acquire a loan, you should also research the market of the product you plan to buy. This big purchase you’re planning is probably a house or vehicle, so pay attention to the relevant factors in each market. You might learn something that changes your plans.

For example, the housing market’s fixed mortgage rates reached their highest average since the 1990s. The automobile industry is facing global supply shortages for essential parts, which has caused production and sales numbers to drop. This information can make or break your purchase, so you must stay informed.

Research also helps you find the most cost-effective option available. Some people prefer homes and vehicles with large down payments and lower monthly rates, while others prefer the opposite. You could find an unexpected sale or unique feature flying under the radar. Don’t make your purchase without researching all the options and considering all possibilities.

Start Saving Early

If you’ve gotten this far, you have the necessary information to establish a timeline for the purchase. However, even if you have plenty of time, it’s wise to start saving as early as possible. You want to have room to adjust the timeline if an unexpected obstacle arises. In the meantime, apply these tried and true methods for saving money:

  • Set aside a percentage of each paycheck.
  • Link an automatic transfer/deposit to your savings account.
  • Set up a direct deposit with your employer.
  • Apply the 50/30/20 rule (50% for necessities, 30% for lifestyle, 20% for savings).
  • Start a change jar.

You can also multiply your savings and accelerate the process by developing multiple sources of income. Here are some ideas:

  • Invest in stocks and cryptocurrency
  • Sell items online
  • Drive for Uber, Lyft, Doordash, etc.
  • Rent extra bedrooms.
  • Make a garage sale.
  • Do chores for neighbors (babysitting, dog walking, landscaping, etc.).
  • Become a certified teacher/trainer in an industry of your interest.

Of course, the best thing you can do to save money is avoid needless expenses. You will sleep easier knowing you did everything in your power to prepare for the big purchase. Be responsible with your money today so you can spend it on your dream home or vehicle tomorrow.

Calculate the Opportunity Cost

Every purchase has an opportunity cost. Some elements of opportunity cost are obvious. For example, spending a lot of money on a new house means you can’t spend it on other worthwhile investments, like your child’s college savings.

Other opportunity costs are a little more subtle. The non-financial implications of a big purchase could be more costly than you imagined. You might have to change your daily schedule and buy new products to accommodate the purchase. It could have significant long-term consequences as well.

Buying a house or vehicle when you’re not ready can strain your family’s relationships, impact your retirement plans, and alter your lifestyle for the worse. You must understand and appreciate all the effects of your big purchase, financial or otherwise.

Set a Meeting Date

Timing is everything with home and vehicle acquisitions, so you must have everything ready for when the right moment arrives. All of your prior preparation comes into play in this pivotal moment. You have enough savings to make the down payment. You know the current state of the market and the best time to buy. Lastly, you know about all the sales, discounts, and promotions that can benefit you. Put this knowledge into setting the ideal date to meet with the seller.

If you’re starting to get nervous at this point, that’s normal. You worked hard to put yourself in the position to buy something valuable, and there’s no shame in feeling anxious as the day gets closer. You might feel more comfortable with a trusted agent or advisor by your side. They will help you plan the purchase’s logistics and make sure you get a fair deal.

Negotiate the Price

While everyday purchases have no room for discussion, you could get a discount on a home or vehicle purchase through clever negotiation. First, evaluate the vendor’s personality. If they appear friendly and sociable, you could manage to sway them in your favor. On the other hand, the stubborn, silent type probably won’t appreciate your attempts to change the bottom line.

Treat the situation like a formal business interaction, keep your emotions in check, and apply the knowledge you gathered in the weeks leading up to this moment. Here are some other tactics that will help you:

  • Request an inspection.
  • Communicate through your agent/advisor when appropriate.
  • Control the pace of negotiations.
  • Reference price comparisons of similar products.
  • Take advantage of seller eagerness.

If you and the seller can’t agree on the price, don’t be afraid to walk away and pursue other options. As we mentioned before, making a big purchase beyond your scope can have unexpected financial and emotional consequences. Don’t overspend if you can avoid it.

Consider Making a Deposit

If you’re planning on buying a home, you should make a sizable pre-purchase deposit to show that you’re a serious buyer. The deposit isn’t always refundable, but it’s a good way to secure your spot as the top buying candidate. Deposits for houses are usually 1-2% of the total purchase price.

Deposits for vehicles depend on the dealer, so you should avoid them until you’re 100% sure about the purchase and you’ve documented the final price. Go to the dealership armed with your financing so the dealer can’t pressure you into making a premature deposit. You control the outcome, not the seller.

Trust in Your Preparations

You have put in a lot of effort to help your family prepare for a big purchase. Believe in those preparations. Trust that your savings and investments will pay off. Trust that you did all the research to find the best product at a fair price. Enter negotiations with confidence that you did everything necessary for a successful purchase, and soon you will walk away with a life-changing product!

Devin Partida

Devin Partida

Devin Partida grew up in the San Francisco Bay Area, where the booming tech and startup scene nurtured her curiosity. Always an avid writer in her younger years, Devin began covering the tech industry for ReHack in 2019, and has since become the young brand’s Editor-in-Chief. When she isn’t writing, Devin enjoys biking around the Golden Gate Bridge, eating hand-crafted ice creams and listening to true crime podcasts.

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