By Barbara O’Neill, Ph.D., CFP®, Rutgers Cooperative Extension, oneill@aesop.rutgers.edu
Personal Financial Management (PFM) program staff often counsel military families about the financial implications of “big ticket” purchases. “Big ticket” means that items cost more than most people can afford from a single paycheck or two, including furniture, computers, electronics, appliances, and cars.
With the possible exception of cars, “big ticket” purchases can be saved for in advance, like any other short-term financial goal. They can also be purchased with a fixed-rate loan or a credit card. Like cars, big ticket items generally depreciate following a purchase and come with the same buying decisions: new or used, leased or financed, and from a private seller or retail merchant.
Below are eight recommendations to share with service members who want to buy “big ticket” items:
Develop a Short-Term Savings Plan
Try to save money to pay cash for items that cost several thousand dollars or less. For example, if $900 is needed for furniture or $1,400 for a laptop computer, divide the cost by an amount that can be saved each month (e.g., $100) to calculate the number of months of required savings (e.g., 9 and 14 months, respectively).
Use Store Layaway Plans
Set aside items at attractive prices and make periodic payments to the merchant until the full amount to pay in cash is saved and the item can be redeemed. Another option is financing plans that don’t require immediate payment, as long as the payment can be saved before the bill comes due.
Earmark Windfalls
Purchase “big ticket” items with cash from windfall income such as retroactive pay, freelance or seasonal work, insurance dividends, gifts, prizes, or an income tax refund.
Follow the “Rule of Three”
Decide key criteria for purchases and compare at least three retailers. Use this worksheet to write down key details about competing products. Shop during seasonal sales for items that are used for only short time periods each year (e.g., Bar-B-Q grills and snow blowers).
Shop at Alternative Vendors
Consider less expensive ways to purchase ‘big ticket” items, especially if funds are limited. Examples include thrift shops, consignment stores, flea markets, and garage sales. Beware that items will be sold “as is” without any warranty so check them out carefully before buying.
Do Pre-Purchase Shopping
Consult vendor websites, product salespersons, and/or back issues of Consumer Reports magazine for product descriptions and recommendations.
Purchase Extended Warranties Selectively
Make decisions on a case-by-case basis. According to Consumer Reports, extended warranties can make sense for certain items such as exercise equipment (e.g., treadmills and elliptical trainers) and laptop computers. These items have high odds of needing repairs within 3 years and most standard warranties are for only a year or less. For other items, however, the odds are much lower that you will collect on extended warranties, which are a high profit item for retailers.
Understand the Cost of Rent-to-Own
Know the pros and cons. Most rent-to-own contracts run for 78 weeks. Although the weekly price is low, consumers actually end up paying 2 to 4 times the retail cost. For example, a television with a $500 suggested retail price might cost $15.95 weekly, or $1,244.10 for 78 weeks, plus possible delivery or processing fees. A better option would be to save $16 a week for about 7 months to get the money needed to purchase the television outright. Nevertheless, rent-to-own could make sense for service members who move frequently and don’t want to ship or store their personal possessions.
