How to Avoid Overspending on that Big Purchase or Project
Turning to a personal loan for a major expense instead of high interest credit card debt can be a responsible decision, but using your loan responsibly is equally important. Whether your funds are going towards a home improvement project, planning the perfect wedding, or organizing your family's summer vacation, managing your funds wisely will help you stay on track.
Here are a few tips to make the most of your loan and help avoid overspending:
- Build your budget
- Give yourself a reality check
- Say no to impulse buys
- Revisit, review, re-forecast
Tip #1: Build your budget
Ideally, you'd have a budget in place before you get a loan but it's never too late. Dedicate time to figuring out exactly how much you can spend before you make a single purchase.
Remember, no matter how well you plan, some things might end up costing more than what you originally intended. Factor in things outside of your control that may affect pricing of supplies, cost of labor, product/service shortages, and so on. For long-term home improvement projects, the price or labor rate may not carry through to the later stages of a project. Baking in at least a 10-20% cushion will help you cover these unforeseen expenses and avoid being blindsided when they occur.
Tip #2: Give yourself a reality check
Once you have your budget, research the products and services you'll need early on to get a clear picture of how much everything will actually cost. Forty percent of home renovators said they went over budget because products or services were more expensive than they initially expected.
Comparison shopping can help curb your overspending and course correct. If you're doing a big bathroom renovation, you might realize that the difference in choosing one set of tiles versus another could save you thousands. Seeing how much flowers cost might motivate you to taper back how many you order for your big event.
Don't wait to get hit with sticker shock. Doing your research can be the big reality check you need to help retool your budget and spending early on so you don't get hit with a surprise later.
Tip #3: Prioritize
After your budget is in place and you've researched everything you plan to purchase, you might have to readjust your budget and prioritize your spending. Identify what you need to buy now and what you can defer to later once you've paid down some of your loan.
If you're buying furniture for your big move, consider putting off some of the items on your wish list for later or if you can accomplish them on your own - like a fun DIY project at a lower price. If you're planning a beach vacation you might need to choose between scuba diving or the deep-sea fishing trip - not both. Running through your options and making firm choices early on will help set you up for success later.
Tip #4: Say No to Impulse Buys
It can be tempting to overspend when your bank account is full from your loan and you see your vision coming to life, but keep in mind this is all money you'll have to pay back. A $100 item here and a $250 service there might seem like no big deal once your loan is in your bank account, but these expenditures can deplete your account before you know it!
You've spent a lot of time devising your budget, so stick to it! Know what your temptations and triggers are and create better habits to control your spending.
Tip #5: Revisit, review, re-forecast
If you're working on a home renovation or another long-term project, revisiting, reviewing and re-forecasting your budget is important. Frequent budget oversight is fundamental to preventing spending from getting too far out of hand. A 10% budget overrun is far easier to correct than a 40% overrun.
A project's budget isn't the only thing to constantly revisit to keep it on track. It's important to review the overall project scope, number of workers, and future resources to make sure they fit into you budget and if not, course correct quickly. Not getting ahead of unplanned work can increase billable hours and get out of control.
A loan can be a responsible way to help achieve your goals, but only if it's well-managed. Smart planning, thinking ahead, and diligent budget management can help you stay on course to accomplish your goals and pay back your loan.