The next question in my series is closely tied to the previous one. In my last post, I asked you how many hours would it take to make that purchase?
In this post, let’s talk about how far that purchase will set you back from your goals.
Depending on your state of life, you might have different financial goals. You might be saving for early retirement, socking away money for a wedding, looking to put a down payment on a house, building an emergency fund, squirreling away money for travel, or any number of big financial goals. Personally, I’m trying to do pretty much all of the above.
Due to where I’m at in my financial life and the impact of career decisions I have made, I feel I’m playing catch up to my more established peers. As such, this question is huge to me when evaluating purchases: How much would this purchase detract from my goals?
Sometimes this question is best asked in terms of yearly costs. Sure, the $15 take out for lunch might not have a huge impact on the down payment for my house. But if I spend $15 on lunch three times a week, that’s $2,340.
Again, this isn’t about deprivation. If you can afford to treat yourself, you should do so. It’s about moderation and focusing on the purchases that will bring you the most long-term happiness. Getting takeaway food that frequently will never mean as much to me as having a safety net emergency fund in the case of loss of employment. It will never taste as good as it will feel when I am able to own my own property. It will never be worth delaying a potential early retirement.
This is related to the dreaded coffee theory: the idea that we should just cut out Starbucks, and we’d all be multi-millionaires. In no way, shape, or form is that true. And if you can afford Starbucks, I think you should treat yourself to Starbucks! Treat yourself to the things you value! When applied to small purchases, this question is more about habits that stack up than it is about deprivation.
But for big purchases, it can be harder. When thinking about how a big purchase can detract from my goals, it’s easy to justify it. “Sure, it’s $250 for a ticket to this show instead of the $50 in the cheap seats. But it’s a once-in-a-lifetime opportunity!” First of all, that’s your choice. Sometimes what you think is a once-in-a-lifetime opportunity really is worth it! And sometimes the view from the cheap seats can actually be just as good. BUT that is a choice for you to make when you ask yourself this question.
While you’re weighing your options, consider this. If you put that $200 difference into an investment account with a conservative 4% return, it would be worth $360 in 20 years.
In other words, that $200 now could mean missing out on $160 later. Just a few of those “big purchases” a year could add up and really make a difference in your long-term savings strategies.
So, next time you’re evaluating whether or not to buy something, ask yourself how far back that purchase will set you back from your goals. And don’t forget to consider the long-reaching impacts.