About 10 years ago, I removed all the window screens from my home primarily because they were damaged and an eyesore.  Plus, the single pane windows on this older home were painted shut, so it really didn’t matter.  With little to no expendable income, I loosened a few windows so they would open, looked into replacing the screens, but ultimately decided, it was an expense that could wait.  And wait it did.  Many years and home improvement projects later, I’m more conscious about saving money and watchful of managing costs.  Beyond my desire to open my windows and feel a breeze of fresh air travel through my home without welcoming flying insects, I often frown at my rising cooling and heating bills and wish these costs were more controllable.

This is where my quest began.  What should be considered when deciding to make a sizable purchase now or later?

Now-Later-2163511These are the five questions I asked and my real life application.

  1. Is the purchase a need or a want?  In my instance, replacing the 21 windows in my home is clearly more of a want than a need.  Over the past few years, I’ve purchased insulated curtains to curtail the drafts, and found I can live quite comfortably without cracking a window.  However, not being able to easily open all my windows is definitely a fire hazard that should be addressed.  My Rationale:   I’ve lived with temporary patches long enough; it may be time for the upgraded, more permanent solution.  This project will fulfill a want and a safety need.
  2. What are the benefits of such a substantial purchase? Some of the immediate benefits would be long-term energy savings.  The United States Energy Savings Department estimated in 2011 that households could save $146 to $501 annually by replacing single-paned windows (which I currently have). The cost would be eligible for a tax credit in 2013.  Tax Incentives for Small Home Improvements Credits are available for 30% of the cost of improvements, up to a total of $1,500. And finally, new windows will not only create a more aesthetically pleasing look, but the windows can increase the resale value of my home. My Rationale:  Even with the tax credit and the annual energy savings, it will still take approximately 15-20 years to recoup the cost of this investment – WOW!  Since I plan to live in this house for many years to come, I care less about the resale value and more about making my home a comfortable, safe haven for me and my loved ones.
  3. How much does it really cost?  For large purchases, I always recommend shopping around or obtaining competitive bids.  I asked for vendor referrals from family and friends and researched current market deals on popular sites like Groupon and Angie’s List to ensure I received the best price for comparable quality and warranties.  I compared quotes from three suppliers and asked probing questions to confirm I was comparing like goods and would ultimately receive the best value.  My Rationale: In this instance, the lower bidder happened to also offer a competitive product and had several quality reviews through consumer sites.  The lower bidder also displayed a sense of pride in their work, had impeccable follow-up to my requests and inquiries, and required no deposits or payments until the work is completed.  Finally, unbeknownst to the supplier, a family member referred them to me based on an Angie’s List promotion.  I’m not a member of the list and never mentioned that I was aware of the deal.  Instead, I requested a quote for comparison purposes and within a day or two of receiving the quote, the vendor proactively mentioned the deal they were running through Angie’s List and sent another quote offering me the same discount run on the member’s only site – now that’s integrity!
  4. How will I pay for it – Credit or Cash – Now or Later?   Here were my options:
  • Pay cash.  This is always the best option in my playbook; however, paying outright would significantly reduce my emergency fund below my comfort zone.  My risk tolerance is low when it comes to spending the majority of my savings in a single, non-emergency related transaction, so that narrowed my options quickly.
  • Pay with credit.  My quest to live debt-free leaves me without a credit card, so I went to www.bankrate.com and researched low-interest credit cards, but also considered applying for a personal or home equity loan through a credit union.  They were all undesirable options, so I limited my options to potentially applying for a low interest rate credit card  with an introductory 0% APR for 15 months in order to pay for the windows slowly over time.
  • Continue to save.  I estimated it would take five months to save the incremental cash and avoid draining my emergency fund. Unfortunately, the timing would also take me through the brunt of winter and leave me high and dry to redeem any immediate cash savings on my potential investment.  I stopped short of reviewing long-term weather forecasts to determine if this would be a mild or harsh winter season (I thought that was taking it too far).  My Rationale.  I believe I can stay debt-free with a little focus and patience.  My options became very clear as I examined my options and prayed about the best thing to do. I decided I’d find the money to pay for it now, or continue to save until I had enough to do so.
  1. What is the opportunity cost, and am I okay with it? Considering the opportunity cost before making a large purchase can often help put things in perspective.  What am I giving up to make this purchase now, five months from now, or not at all?  The alternative to replacing my windows now is that I could apply incremental cash to build a heftier emergency fund, fully fund an IRA, and/or invest in other investment tools.  My Rationale.  I have opted to complete what I believe to be an overdue upgrade on a house I plan to live in for many years, reduce my energy bills this winter, potentially increase the value of my home, and finally open a window of my choice to feel the breeze.

I want to hear from you.  How do you define a “large” purchase? What else do you consider when deciding to make a large dollar purchase or investment?