The impact of a bad decision on a big purchase has the potential to be life altering. So when it comes to significant purchases, how do you make sure you don’t blow your money and regret it?
Previously I’ve laid bare my financial mistakes for all to see. It’s now time to identify these mistakes and fnd resolutions to share with you all.
The major trick? You need to ask questions. Lots and lots and lots of questions. Let me offer you an example from my own book of hard-learnt lessons.
A guy I worked with a while ago was one day telling me about how he’d got this awesome new car on a novated lease. What’s that? Well, he told me, it’s where you sign up for a new car, pay for it all out of your pre-tax income and you don’t have to pay for servicing or fuel.
Now, this is partially true. Yes, the lease payments do come out of your pre-tax income so you pay less tax. And yes, you do get a fuel card and your major expenses like registration, insurance and petrol are covered.
The online lease calculator confirmed that I would, in fact, be “better off” to the tune of about $4,000 a year! Wow. What a deal.
BUT, and it’s a big but, that $4,000 in “savings” was eaten up entirely by the post-tax contribution I had to make to pay for things like petrol, registration and insurance. What I saved in tax, I paid for the car, and then some.
I didn’t realise this until I was signed up, sitting in my lovely new car and I saw my payslip. I was significantly worse off. Sure, I had a new car but I was also paying $380 a fortnight before tax and another $160 after tax for said car. I went from owning my old car outright with no repayments and just running expenses, to being down $540 a fortnight.
I could easily blame the guy at work for not being upfront with me (or just not knowing what he was talking about) or the salesperson for not explaining things clearly, but in reality, I didn’t do my research. I wasn’t prepared for anything other than a pretty, shiny new car.
I have found myself saying so many times over the last 4 years “why didn’t I ask them that?” In all honesty, I didn’t ask them anything of substance.
Questions I should have asked:
- What is the residual payout at the end of the lease and is there a way I can reduce it?
- What is a residual?
- What is the penalty for not meeting my mileage requirements?
- What happens if I change jobs or lose my job?
- How much is this ACTUALLY going to cost me?
Questions I actually asked:
- Does it come in blue?
Novated leasing company 1, Nyree 0.
Not asking these questions cost me money, big time
Maybe if I’d asked some of those questions I might have known what I was signing up to. I might have even gotten cold feet and talked myself out of it. But it’s just a car right? Well just to give some context to the impact of this decision, I have spent more than $56,000 (both pre and post tax) over the last 4 years on a car and its running costs that is now worth about $15,000. Epic fail.
Why is it that we don’t ask questions about money upfront?
There could be a million reasons why we don’t ask the questions we need to ask. Maybe we haven’t even done enough research to know what to ask? Maybe we got so caught up in that new car smell that we don’t want to know the truth? Or maybe we just don’t want to look dumb in front of a slick salesman. I will put my hand up for all three.
Now while this example is for a car on a novated lease, the idea of asking questions – enough questions, the right questions – can be applied to any purchase, particularly those significant purchases that require ongoing payments or take a big chunk of your money. And these questions need to be directed to more than just the salesperson.
We need to ask the questions of ourselves.
- Do I really need this?
- What do I have to sacrifice in order to pay for this? (There’s always something!)
- Can I get the same outcome cheaper?
We need to ask people independent of the item some questions. If you were making this purchase, what would you want to know? That friend of yours might have a question you need an answer to that you haven’t even thought of yet.
We need to ask the questions of the item we’re buying or signing up for too. Hey new car, are you going to save me money by being fuel efficient? Hey gym membership, if I get injured can I suspend you while I recover? Hey home loan, if I lose my job, can I freeze my repayments until I’m back on my feet?
And most importantly, we need to ask ourselves more questions after that new thing is in our possession.
- Did I make the right choice?
- Why did I choose that particular thing at that particular time and pay for it that particular way?
Knowing what I know now, would I choose this option again? What do I need to know for next time? These can be uncomfortable questions to ask – particularly if you’re having some serious buyer’s remorse – but you can’t expect to learn for next time if you don’t face up to it. I have learned this the very hard way.
You need to know what you’re signing up for and what it is actually going to cost you in the long run. You work hard for your money – don’t blow it.