Have you felt regret after you bought something?
You know, the “I should have known better” feeling in your gut after you realize that the thing you bought was a waste of money.
It is called buyer’s remorse. Something we all have experienced at some point.
I know a lot of decisions don’t always come down to dollars and cents. However, for major purchases, buyers’ remorse can cost you big.
CNBC lists 5 areas in which this occurs frequently:
- Real Estate
- Contract Purchases
The crux of the article is this: all of these types of purchases are tough and costly to reverse. Once the deal is done, it is done.
How do we avoid this?
If you have been reading my blog for a while, you will see that I have spent a lot of posts unpacking financial terms. It is because I am passionate about making complex financial concepts simple. Here is another term you should know: opportunity cost.
Investopedia defines opportunity cost this way: “Opportunity cost refers to a benefit that a person could have received, but gave up, to take another course of action.”
So, do we think about this before we make major purchases? Probably not. Rather, we focus on the value of the actual item and the satisfaction it will bring.
Unfortunately, we rarely consider the other alternatives for our money. Buyer’s Remorse occurs when we run through the opportunity costs of a purchase and realizing that the costs are too high… after the fact. Here are things to consider before making that big purchase.
4 Tips on how Assessing Opportunity Costs can reduce Buyer’s Remorse.
Research is the most important step in this process. Take some time to understand all aspects of the product. Also look at products from various companies and at different price points. Make sure you review the return policy and contractual agreements. Also, look out for any hidden fees that could pop up upon purchase or afterward.
If you don’t understand what you are buying, don’t buy it.
- Do you need it?
This is an obvious one. Do you actually need the thing? Is it essential for your life in this season?
Honestly, I am dealing with this one myself. I have baby #2 on the way and I am considering buying a new (used) car. But do I need it?
I currently have a four-door VW Golf. It’s small, but two car seats fit inside (barely). So I don’t need it right now. What I need is a good double stroller.
- Determine its value to you
What do you value and enjoy? Do you value convenience or reliability? How about name brand versus up-and-coming?
Your value and preferences have great influence on your spending decisions. If you value good food, you wouldn’t mind paying for an expensive meal. Or if value up-to-date electronics, you would wait hours in line to buy the latest Cannon DSLR camera.
Before making a big purchase, run through your values and see if the product/service lines up.
- Weigh and compare alternatives
Finally, this is where opportunity costs come in. As I mentioned earlier, a “yes” to one thing means a “no” to all other things. So assess the other alternatives on the table.
What else could you do with the money? Could you pay down on your debt? Add to your emergency fund? Take a weekend trip out of town?
Weigh the alternatives you come up with against the thing you are buying. Does it outweigh all the other options? A “yes” means you can move forward. But, if you get to a “no,” then you seriously need to reconsider the purchase.
Once you go through all of these steps you will be confident that you made the right purchase.
What are strategies you use to avoid buyer’s remorse? Let me know in the comments.