Osakis Voices: Impulse purchases: Defend your budget
'Tis the season. Tax return season, that is. The season where many large, consumer purchases are made possible with the down payment a tax return provides. It's one thing to buy something outright, but increasingly more and more consumer spending is on items that require some level of financing. Getting a loan isn't a bad thing, however, a hastily purchased item that isn't considerate of your budget can wreak havoc on your finances.
In many cases we take the time to think about what we would like to spend, but we tend to devalue future income spent. We don't correctly quantify the total amount of future payments, interest, etc, we just look at the amount of the payment. With the importance of financing to drive sales of many higher priced goods, sales environments are increasingly more purposely set up to take advantage of this impulsive behavior.
The purpose of budgeting is to set our own expectations of how we should spend our money to accomplish our financial goals. The budget process places an importance of our own expectations, information gathering, and awareness of our impulsive nature to arm ourselves with the knowledge custom to our situations and how to be on offense when looking to make purchases.
Dealer financing is everywhere — homes, car dealerships, furniture stores, cell-phones, recreational vehicles, credit cards — without making a game plan, you'll find yourself, and your budget, always on defense! Retailers aren't going to sit down and work out your budget for you, they are going to run a credit report, and either approve or deny.
In order to make a rational decision, one that makes the most financial sense, a consumer needs full information. How often in a sales environment do you have full information? Do you know the mechanical history of the car, the total cost of the loan or lease over the duration of the contract, and the fees associated with the transaction (motor vehicle sales tax, tabs/registration cost for coming years, etc). There's so much information to be gathered that often in the heat of the moment this information is ignored because we want that item and we simplify our economic decision-making to one very small piece of the puzzle — the payment.
Without full knowledge, we cannot be rational consumers. That is why it is important to step away from these transactions and acquire that knowledge to avoid the impulsive irrationality that many sales environments are either directly or indirectly encouraging. Come to the bank, talk it over, and decide what the best course of action is. Or, at the very least, make that purchase days later, after you have had the time to analyze all the costs of the transaction, including the opportunity cost of dedicating a stream of income to an object that has very little value or less and less value the moment you purchase it.
With an adequate budget, consumers can be on the offense to take advantage of good deals! Consumers have never been hit with more ads, deals, etc than they are right now, and in very personal and subliminal ways. Are deals even deals anymore? Again, if you have a game plan — a budget — you've done your homework on the things you want to purchase.
You'll notice that often the best time to buy something is when it isn't in season. Winter clothes, the end of the winter. TVs, after the Super Bowl. Lawnmowers, right before winter. If you are planning ahead, this isn't difficult to take advantage of. But, the dealers are betting you aren't. And after that first snow, they set the price on what you pay for that snowblower, because you need it now, not in five months.
Finally, it sure is easy purchase things online, but there are many hidden costs to those transactions. Don't devalue your time and the impact of spending your money locally. The time you spend to get a good deal, put together a product, and spend minutes — even hours — on the phone with customer service is a cost to you. Many times, in fact, most of the time, working with independent local businesses can save you time and stress. Additionally, spending your money locally contributes to community wealth that is returned to you in the forms of lower property taxes (better tax base), better amenities (schools, parks, etc), and future job opportunities with growing businesses!
Osakis Voices is a rotating column written by community leaders who share their thoughts in their field of expertise.