Planning a Major Purchase? Remember Your A-B-Cs

Many consumers postponed making big purchases during the pandemic and have continued to remain cautious amid concerns of inflation and rising interest rates. Yet this year some say they’re now ready to reconsider purchasing large-ticket items such as electronics, home appliances and family vacations.

According to a recent Household Spending Survey issued by the Federal Reserve Bank of New York, the likelihood of consumers making a large purchase over the next four months has increased for some product categories, including home appliances and electronics. Additional research from Vericast suggests that while consumers are adjusting their lifestyles and spending overall, 35% plan to take a vacation and 24% plan to purchase new technology in 2023.

Financial experts at SchoolsFirst Federal Credit Union, the largest credit union in California and fifth largest in the United States, recommend that potential buyers look beyond the price tag when making a large purchase. Consumers should first take into account their overall priorities and spending needs, and then decide how to finance or pay for the purchase.

"It’s important to make a budget and stick to it,” said Jane Eichenbaum, senior vice president of Member Contact Centers for SchoolsFirst FCU. “Consumers need to consider the overall price of the purchase, including any accessories, extras or additional expenses down the road.”

Eichenbaum suggests a simple method, based on the acronym A-B-C, to create a budget and ensure that the purchase works within your means:

Analyze your situation. Consider what you need to buy and why you need it. Is it absolutely necessary, or is it an impulse purchase? It’s also important to think about when you need the item – the longer the time frame, the more time you’ll have to consider financing options and methods of payment. And when selecting a product, it may be wise to consider quality over price. The least expensive item may not be the best option in the long run, based on ongoing maintenance or the need to replace the product in the future.

Budget carefully. How will this purchase impact your budget? Eichenbaum encourages buyers to understand the total cost of ownership, including warranties and care plans for electronics and appliances, and for car purchases, expenditures for insurance and registration. Consumers should review their current debts and obligations to understand where the new purchase fits in within ongoing expenses. Simple online tools such as the monthly spending calculator on the SchoolsFirst FCU website can help.

Carry out your plan. Based on your budget and the time frame for your purchase, review options for savings or taking on debt. Regardless of your situation, Eichenbaum advises against spending all of your cash on hand, as it’s important to maintain an emergency fund. It might be helpful to talk with a trusted representative at your financial institution, who can recommend specific tools such as an automated savings plan to build savings over time, or a consolidated loan to reduce ongoing debt payments.

“Our Members often say that it’s particularly difficult to understand how much they can afford to pay for a major purchase while also keeping up with their monthly bills,” Eichenbaum said. “Some say they benefit from self-service planning tools that are available online 24/7, while others say they benefit most from learning how to choose the right product to meet their needs, such as a short-term savings account or low-rate lending product.”