9 tips for making a budget before a big purchase

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On the market for a big purchase? Whether it’s a car, an appliance or something else you’ve had your eye on, it’s important to plan a budget for any upcoming big purchase. Creating and sticking to a budget, as well as doing ample research beforehand, can help you avoid unnecessary debt and buyer’s remorse.

Here are 9 budgeting tips to keep top-of-mind as you gear up to make that next big purchase.

1. Decide if the purchase is essential

Before buying something expensive, ask yourself whether you actually need it. While a reliable car for commuting to work can be essential, replacing your TV with the latest and greatest model probably isn’t. Determine whether you’re buying for a need vs. a want, and take a hard look around at whether you can make do with what you already have.

Sometimes, a worthwhile test is to ask yourself—can I keep working and earning at the same level with the same quality of life without buying this item? If the answer is yes, you probably don’t need it right now.

Depending on the item, consider more budget-friendly options like buying used or repairing it if it’s broken.

2. Set a goal that aligns with your budget

Decide exactly what you want to buy and how you can afford it. Be as specific as possible when it comes to the details of the purchase, as well as how paying for it impacts both your current and future budget goals.

What model are you looking at? How soon are you looking to buy? Can you wait to make the purchase until you’re in a better financial position? How long will it take you to pay it back?

Answering these questions upfront can be a huge benefit in terms of making the purchase that’s right for you and your budget.

3. Make a list of pros and cons

Take the time to write a list of all pros and cons that come with making this purchase. Pros can be things like saving time on chores from having a fixed dishwasher or not worrying about your car breaking down on the way to work anymore. Cons can include areas you’d have to cut back on other spending or whether the purchase will create a large debt you aren’t sure you can manage.

4. Research purchase options

If you’ve decided to buy, research is key. Find out what sellers have the item in stock, who has the lowest price, and what their customer care policies are. Is there a warranty included or will you have to pay for one?

Seller and product reputation here is vital, so make sure to read reviews about both the item itself and the seller. If the item has a good reputation for quality (especially in the long term), think about buying used to save some money while still getting a quality product.

5. Assess your spending

Proper budgeting (especially before a big purchase) usually means cutting back on some of your spending. Take a close look at your bank statements, and determine how much you’re taking home each month, as well as where you generally spend what’s left after essential expenses.

Out of your non-essential spending, assess where you can cut back, or where you can divert funds to a big purchase instead of many potentially unnecessary smaller ones. 

Start saving early if you intend to pay for the item in full, as saving for a big purchase can sometimes take months or years. The high-yield Varo Savings Account has no minimum balance requirement, no fees, and easy auto-saving tools to help grow your money.

If you can’t afford purchasing the item in full, consider what your financing options are, as well as whether it makes sense to purchase the item with a credit card (and potentially build your credit if you’re responsible with payments). 

If you need to start building credit, the Varo Believe Credit Card¹ offers no hard credit check to apply, no minimum security deposit, and no annual fee or interest. It's designed to help you build your credit and keep track of your progress.

6. Look at the risk

Every time you make a big purchase, it comes with some degree of risk. 

During a scenario in which your item breaks, make sure you’re covered by a warranty or insured for any unforeseen damages that might occur down the road. Take the time to understand the limitations of the warranty and, if it makes sense, have a backup plan for any additional parts or labor that might be required for repair.

You want the peace of mind that your big purchase is protected, especially given that it’s probably meant to last you quite a while. 

7. Look at financing options

Once you feel comfortable that you’re ready to buy (and that you’ve done your due diligence in terms of research), it’s time to determine what the best purchasing option is for you. Many people choose to finance big purchases instead of buying outright (which means you’ll take out a loan and pay it back over time).

Sometimes, the seller offers financing, but you can also see what options your bank offers, and whether you can get a better interest rate through a personal loan or a credit card.

If you’re going the route of loan or credit card, make sure you’re able to pay it back in a responsible manner, and that you fully understand its terms. Remember, you don’t want to risk possible damage to your credit just to make a purchase that you later decide wasn’t worth it. 

8. Understand and protect your credit score

Your financing options (including how good they are) often depend on your credit score. Lenders use your credit score as a factor in determining whether they should or shouldn’t let you borrow money. A high score suggests healthy financial behaviors and a good repayment history, whereas lower scores reflect missed payments or a higher-risk borrower. The higher your score, the better. 

Talk to both the seller and your bank to see what financing options you qualify for, as well as whether regular loan or credit card payments fit into your current and future budget. Remember that if you regularly miss loan payments, it will hurt your credit, as will too many hard credit inquiries if you make too many loan requests. On the flip side, making regular, on-time payments and diversifying your credit can boost your credit score in the long run by showing you’re a responsible borrower.

9. Follow up on payments

Remember what we said about sticking to your payments? If you’re financing your purchase, making regular payments is vital for paying down your loan, sticking to your budget, protecting your credit score, and avoiding the worst-case scenario of having your item repossessed.

Put these payments in your calendar, or better yet, set up auto-payments to reduce your chances of forgetting. Remember to budget for these payments while planning your monthly spending.

Careful budgeting and due diligence are both the ticket here, and remember that just because you can buy something, doesn’t mean you can afford it. To help protect and enrich your financial future, try to make financial responsibility the backbone of any big purchase.

¹ The Varo Believe Secured Credit Card is designed to help you build your credit; however, a variety of factors impact your credit including payment history, utilization, derogatory marks, account age, total number of accounts, and inquiries--not all factors are equally weighted. Building your credit may take time and is a process, but the Varo Believe Card may be able to help when you consistently make on-time payments.

Unless otherwise noted above, opinions, advice, services, or other information or content expressed or contributed by customers or non-Varo contributors do not necessarily state or reflect those of Varo Bank, N.A. Member FDIC (“Bank”). Bank is not responsible for the accuracy of any content provided by author(s) or contributor(s) other than Varo.