Career Advice - A Community Blog

Erik Larson writes about the job market, resume improvement, and career advice

How to Make Informed Buying Decisions

Written by Erik Larson, Community Blogger | Jun 6, 2017 7:30 PM

Many people want to be intentional about their spending habits. This means that they think about what they are going to buy before making a purchase. However, it can be challenging to develop responsible and informed buying habits. There are a few things that consumers will have to keep in mind.

Do Research

When a responsible consumer wants to purchase a new vehicle, she will analyze the market to see what the best option would be without traversing her budget. This principle can pretty much be applied to any buying decision. Find some balanced, authoritative product reviews to gain insight into different models and brands.

Consider The Return On Investment

The Return On Investment (ROI) is an analysis of the future profit of a particular purchase. It is particularly relevant when businesses are making a purchase. If an entrepreneur is purchasing advertising, she will need to assess whether the return on investment will outweigh the advertising fees. One of the most prevalent ROI models is the cash flow method. 

The same (or a similar) principle can be applied in general buying decisions. Even if the consumer does not expect that she will make money on a purchase, she needs to assess whether the product will have ongoing value that outweighs the purchase price.

Assess The Current Market Value

This is a typical principle when investing in the stock market, but it is relevant to almost all purchases. As a rule of thumb, investors will not purchase a stock when it is high. They will wait until the market is more favorable, then purchase the stock and sell it when it is high again. Similarly, if the market anticipates that a pair of expensive boots will be available for a reduced price in a few months, the wise consumer would wait.

Don't Invest In Trends

Fads may impress friends for the moment. But the problem is that they will fade into irrelevancy within a few years, and the investment will be effectively wasted. Think of the homeowner that invested in shag carpeting, only to have it as a permanent amenity to the home long after its time. Trends might have their place, but rational consumers typically avoid over-investing in them. Aim for timelessness.

Resisting The Salesperson

Some products sell themselves. Others have to be sold under pressure by over-enthusiastic salespeople. Many consumers do not want to say no and will crack under pressure. Salespeople know that and take advantage of it. But wise purchases are not made under pressure. Wait until you have some clarity before making the buying decision.

Buying On Impulse

That $300 jacket might seem very appealing when you are in the store. But that impulse will distort your thinking. Similar to buying under the pressure of a salesperson, buying under impulse prevents you from thinking about alternatives. The jacket might be cheaper somewhere else. It might also be cheaper in a couple of months. If you want to avoid this, do not shop for fun, as people who shop for fun are more likely to give in to impulse buying. Think about the motivations behind your impulse buying and you will be better equipped to resist the temptation.

Wants Vs Needs

This is a pretty simple principle that virtually everybody knows and yet most people do not apply. Keep in mind that you do not actually need that $300 jacket. You have plenty of others in your closet. A good way to assess whether something is a want or a need is to ask whether you wanted this item before going to the store. If you did not even think about the item, then you can probably get by without it. 

Something to keep in mind is that not everything that has practical use is a need. A gardener might be able to make use of some new equipment, but that does not mean that she needs it. Assess the value of the product while keeping what you already own in mind as a qualification. 

Making informed buying decisions can impact your happiness and livelihood. If you practice these principles every time you think of making a purchase, (whether a new apartment or a new pair of jeans) you will gain financial stability.

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