Like it or not, big purchases are a part of life. Whether they’re unexpected—say, your refrigerator breaks down and you need a replacement—or planned for—like paying rent—spending hard-earned cash on big expenses can seem daunting. Either way, adequate planning and preparation can go a long way with ensuring you approach these types of purchases in a responsible manner, and without unnecessary stress.
As the CEO of Zebit, a free employee benefit that provides financial education, planning tools, and access to no-cost credit, I know a thing or two about being accountable with your bank account, and can help you navigate the ins and outs of large expenditures without stressing out. Below, I’ve compiled everything you need to know about making big purchases in six easy-to-understand steps.
Regardless of the amount you’ve earmarked or saved up for a big expenditure, it pays—literally—to do your homework and uncover the best deal. Though this may require additional planning or time on the front end, it’s sure to save you money in the long run.
Avoid carrying a revolving credit balance
Revolving credit got its name for a reason; it can put you into a cycle of debt, especially if you don’t have money in the bank to pay down the balance each month. Instead, look for closed-end options that have a built-in safeguard against accumulating interest charges and spending beyond your means.
Strike the right balance
It’s important not to use up the “open-to-buy” balance on your credit card, also known as the difference between a credit limit and the outstanding balance. Using the open-to-buy amount may actually prevent you from being able to use auto-pay on recurring charges on the card. It’s also a good idea to have those funds there in case of an emergency.
Beware of “free” financing “gotchas”
Free financing options may look good from a distance, but get closer and you’ll see them for what they really are—cheap bait meant to lure you in and hook you, only to penalize you for a late payment with interest that is charged starting from the purchase date, plus the balance that you may not be able to pay. To that end, it’s wise to avoid using costly financing methods such as payday loans, rent-to-own purchases, and expensive in-store credit options. Not only can some of these spending alternatives carry a price tag up to 4x the original price, but they are often fraught with hidden fees, penalties, and sky-high interest rates, which can also lead to a negative impact on your credit score.
NSFs: non-sufficient funds = not suitable for [you]
While it may seem obvious to only spend within your financial means, account overdrafts can happen. In addition to overdraft fees, beware of bank-backed balance protection programs which can get expensive, fast. They can charge you additional fees, which actually do more harm than good. You’re better off keeping a close eye on your bank account and only spending funds you have readily available. Consider setting account alerts as an additional safety net, as they alert you when your funds dip below a certain threshold.
Stay focused on your budget
Once you have outlined your disciplined budget and savings plan, do your best not to interrupt it. Small spending missteps create a domino effect, and can send you into a downward spiral that can be hard to recover from. Don’t have a disciplined budget? Download the free Instant Budget app from Zebit to learn where to cut back and how to save.
For more information and access to smart spending resources, tools, and more, visit www.Zebit.com.
About Michael Thiemann, CEO of Zebit, Inc.
Michael Thiemann is the co-founder and chief executive officer of Zebit, Inc., a free employee benefit that provides financial education, planning tools, and a no-cost credit option that help working Americans take control of their everyday financial lives. By partnering with employers and leveraging advanced technology, Zebit provides a unique financial wellness offering that lowers employee stress and improves the corporate bottom line. Previously, Thiemann served as CEO of Global Analytics, Investment Science, HNC Financial Solutions and Aptex. With Zebit, he continues his record of breakthrough analytics products for credit, fraud prevention and internet transaction analysis. His team developed Falcon (now FICO Falcon), a payment-systems fraud solution that protects over two billion credit card accounts worldwide.
Thiemann received an M.B.A. from Harvard Business School, where he was a Baker Scholar. He also holds an M.S. and B.S. in electrical engineering with distinction from Stanford University. Mr. Thiemann has served on over two dozen commercial and non-profit boards.