There are moments in life when we’ll all encounter the need to make a large purchase, without necessarily having the cash and resources we need in our bank accounts to afford it.
Most people simply can’t afford to buy a car outright, purchase a home, or invest in a property remodeling strategy without having to first figure out how to expand their finances.
The good news is there are a few different options available to any of us when we’re approached with the need to make a big purchase.
The most common options fall into two categories, the long-term saving route, and the short-term borrowing route.
The important thing to remember here is neither option is necessarily better than the other. Both have their benefits for certain scenarios.
Today, we’re going to look at how you can decide whether it’s best to borrow or save for your next big transaction.
When Is It A Good Idea To Save For A Purchase?
Patience is a virtue when it comes to managing your finances. If you choose to wait and save the money you need for your purchase, then you won’t have to worry about paying off interest rates or taking on additional debt.
In some cases, saving up and paying for something in cash can also make it easier to negotiate a better deal. Some car salesman, technology vendors and other organizations will give you a deal if you’re willing to pay up-front.
Of course, saving comes with significant downsides too. If you’re forced to wait months to acquire the money you need to make a purchase, you’re going to be left without an important purchase for a long period of time.
Sometimes, this isn’t an issue. If you want to buy your first house, spending a little longer living at home so you can build your financial resources isn’t too much of a hardship, and could mean you start your new life on a better foot.
However, if you need something instantly, such as a car to take you to and from work, then you’re going to have a much harder time waiting around for the cash to become available. Saving is often the best strategy when you can afford to be patient.
When Does It Make Sense To Borrow Money?
Borrowing money is a controversial topic for a lot of people. From an early age, many of us are taught to avoid loans and credit cards at all costs.
However, the reality is these tools can be extremely useful in the right circumstances.
Not only do they allow you to access the things you need right away, but they can be a useful way to spread out the cost of large purchases into more manageable chunks.
Not to mention, if you borrow money and pay it off according to the terms and conditions laid out by your lender, then you’ll be able to start working on improving your credit rating, which could make it easier for you to access additional financial resources in the future.
Borrowing money with a personal loan or a similar product makes perfect sense when the thing you need to buy is a matter of urgency in your life.
You can’t necessarily wait around for the money you need for an essential repair or purchase to fall into your lap.
Borrowing also makes sense when you’re buying something that’s going to appreciate over time.
Buying a home now might mean you’re taking on debt in the form of a mortgage, but it will allow you to invest in an asset that will generally deliver exceptional value in the long term.
Taking out a loan to pay for college is costly, but it also opens the door to new opportunities for higher paying jobs and better wages.
Making The Right Choices With Your Finances
The truth is there’s no right way to spend money, provided you’re taking an intelligent, data-driven, and informed approach.
Provided you don’t simply rush into borrowing money without knowing the basics of debt and when you don’t really need to do so, there’s nothing wrong with taking out loans or using credit cards from time to time.
In most cases, the best way to make the decision between borrowing or saving is to ask yourself exactly how urgent the purchase is. If you don’t need something desperately, or you don’t believe the purchase is going to deliver compounding returns, then simply wait and save.
If you think making a purchase now will generate more benefits for you in the long term, or you can’t afford to wait around, then considering exploring all your borrowing options carefully.
