So you spent a small pile of money on something you THOUGHT you wanted — only to realize later you could have gone without it.
Congrats! You have buyer’s remorse. It’s not fun BUT there are ways to prevent it. We’ll show you how.
What does buyer’s remorse mean?
Buyer’s remorse is regretting spending money on something.
It’s important to know that buyer’s remorse is not just limited to those extra pairs of Jimmy Choos piling up in your walk-in. The big buyer’s remorse items are the ones that keep you up at night with worries of payments. Those ones that follow you for years and years.
Buyer’s regret is also a form of cognitive dissonance, where your mind doesn’t agree with your actions. This causes all those uncomfortable emotions when the rush of the purchase wears off and cancellation clauses suddenly become a serious study in your house.
What causes buyer’s remorse?
There are a number of reasons you might have buyer’s remorse. These include:
- Not understanding the financial commitment fully
- A change in your financial position
- Not having enough disposable income available for the just-in-case moments that happen with the new purchase
- Making big decisions on a whim
- Poor financial planning
- Your purchase is preventing you from living your rich life
The three big purchases that could lead to regret
We’ve all been through the drill: You work your tail off in high school to get accepted to a good college. Then, you work your tail off again to get that job that affords you the house and car. All your boxes are ticked. Right?
But it doesn’t go quite that way. If you’re anything like the typical American, you’ll have your share of the $1.7 trillion student loan debt bill. Combine this with a mortgage and a car payment, and you’re most certainly setting yourself up for a toxic trio.
Before you sell your house and give the bank a call to come and take the car, you need to do the math. If you can manage your payments, save, invest, and still have fun money, then good for you! You may need to simply make a few tweaks to free up some cash.
But if you’re saying a quick prayer before checking your bank statement or going into a tizzy over those Star Wars purchases, it’s time to figure out why your finances aren’t working for you. Now, our leader and founder of this website, Ramit Sethi, is a big believer in starting with the big-ticket items first. Forget the $3 questions and start asking those $30,000 ones.
Buying a house
Let’s just put this out there: You absolutely do not HAVE to buy a house. You can rent. For the rest of your life if you so desire. As long as it makes financial sense to do so.
If and when you buy, it needs to be on your terms, even though there’s often societal pressures that lead people to buy.
There are a few things you need to have in place before you make this decision.
- You need to have a downpayment saved up for at least 20% of the purchase price. Whether the lender asks for it or not. This savings account should be separate from your regular savings account.
- Decide whether this is your forever home or not. If not, consider the costs of constantly buying and selling and paying all those fees all over again. Even if you make a substantial profit on the sale of your property thanks to equity and a rising property market, determine whether it’s worth those costs.
- Do the math on affordability. If you’re going to end up paying less than what you’re renting for, make sure this includes property taxes, insurances, a maintenance account, and ad hoc expenses associated with owning a home. Also, it’s worth knowing what your debt to income ratio will be when all this is said and done.
- If you like to travel, is it worth buying somewhere just for the sake of it? What if you find the property of your dreams somewhere else?
- Understand that buying a house shouldn’t be considered an investment. There are three reasons we say this: phantom costs of owning a home, how the property market compares with inflation, and tax savings that wouldn’t have existed without the debt in the first place. There are no investment benefits here unless you’re just looking to live rent-free when you retire.
Buying a house only makes sense if it gets you closer to living your Rich Life, not further away.
Buying a car
A car should be a means of transport that gets you from A to B with as little hassle or expenses as possible. If not, it’s not a good buy.
New car anxiety comes when you buy a car for your daily commute that leaves a hole in your pocket. Suddenly that 640 horsepower and big block engine don’t mean a thing.
One of the best ways to avoid that new car regret is by buying a car that you can keep for at least 10 years. Look for a car that does more than turn heads as you rev in your driveway. While it feels great to have a car that can be admired, rather be admired for your financial prowess.
A new car should have the following attributes:
- Low servicing costs
- A good safety rating and reputation
- A decent resale value
- Great fuel efficiency
- A good fit for your family and environment. If you need that extra space or higher suspension, then get it
- Features that will make you want to drive the car every day without pushing the cost up too much. For instance, electric windows and seat warmers can be a great addition, whereas titanium rims and a pearlescent paint job might just eat away at other opportunities
Getting a degree
There’s no denying that there are certain benefits to getting a degree. Access to great jobs, higher salary bands, and opportunities that may never cross your path if it’s not for that Yale or Stanford Alumni gatherings.
While jobless graduates might feel like they’ve just thrown money down the drain, it’s worth knowing that graduates account for about 4.2% of the unemployment market. Those with only a high school degree, however, account for 7.8%.
But let’s face it, after spending between $26,820 to $54,880 per year on that degree, it hardly seems fair that there are any unemployed graduates at all. Amiright?
So while it’s still worth pursuing further education, you need to have a game plan for the student loan debt. Work your tail off for a scholarship too, even if it’s only a partial scholarship. Some funds towards your education are better than none at all.
If possible, get started on those repayments as soon as you can. Whether it’s picking up Uber Eats delivery shifts or working part-time as a sales consultant at the Apple store, the quicker you start paying off the debt, the better.
If you’re already done studying and have a stable job, but still find the student loan debt to be longer than 2001: A Space Odyssey, rework those finances. Student loans respond well to the snowball technique and avalanche technique for paying off debt.
Let’s do the math.
If you have student loan debt of $50,000 and pay $500 a month at a rate of 5%, you’ll pay the loan off in 130 months. That’s almost 11 years! Plus, you’ll pay interest of $15,000.
Now, add $50 to your repayments per month. You drop your repayments to 114 months and you save $2,300 in interest. Imagine what you could do if you threw an extra $100 or $500 at your student loans?
Now that won’t ease up the degree resentment, but at least the burden aspect will be gone.
How to prevent buyer’s remorse
The simplified, short answer on how to avoid buyer’s remorse, is to stay away from ever buying or paying for anything ever again. Seems doable… Or not.
Instead of going cold turkey on every financial decision, become an expert on your purchases instead. Become a conscious spender.
Buy the thing you actually want
Why spend $10 on five pairs of shoes that don’t last past the first rainy season, when you can spend $40 on a decent pair that will last you a decade? When the item you really want seems a little out of reach financially, it’s time to create space for it in your budget. Forego those things that you don’t actually want in order to afford the things you do.
Ramit refers to this as conscious spending. When you’re constantly splashing on things that don’t really have an effect on your happiness or contentment at all, you’ll soon find yourself resentful and filled with purchase anxiety.
Work it into your conscious spending plan
Netflix drops a new season of your favorite show and while you don’t really have time for chill, you make a plan and it’s in your after-dinner schedule. The whole season in one day.
So why is it so hard to do the same with your finances? Items that you want to focus on deserve to be part of your conscious spending plan. This means that if you’re having a hard time justifying a purchase of something you want, make room for it without compromising your finances.
The limited-edition baby Yoda figurine that’s worth a car installment doesn’t have to leave you feeling out of pocket and out of touch. Make a conscious decision to stop spending on throw pillows from Pottery Barn just because your mother-in-law said it looks good, and spend on the things you want instead.
Sleep on your decision
“Rash decisions are the best!” Said no one, ever. If you have to make a decision on a big-ticket item in the spur of the moment, then the answer should be no. Sure, it might be a good deal, but if you go in unprepared you’ll never really know.
Sleeping on your decision will give you some space to think without the instant gratification monster lurking in the background. That extra day just to mull the deal over creates an inner dialogue where you can measure up the pros and cons. This is exactly what you need.
If it still seems like a good idea in the morning, then go for it.
Do your research (especially for large purchases)
The only way you’re going to be satisfied that you have the best deal in hand is by doing research. Now, this helps if you’re in the market for a new smartphone or tablet. However, it becomes essential when you’re splashing out on a house or car.
You know what you want, and more importantly, you know what you need most. No one knows your financial standing as well as you do.
When you do research, it’s about more than just comparing the features.
- The product: You want to know the product inside and out. If it’s a house, go see it. Take a structural engineer with you if you can. Do all the grunt work before you even consider putting in an offer. You want to know what you’re buying. Same with a car. If it’s fresh off the showroom floor, a lot of your research can happen online. If it’s a second-hand model, you want to dig deeper. Lift the hood, kick the tires.
- The seller: Estate agencies, gadget sellers, car dealerships. They all have customers which means there’s a good chance you’ll find reviews. Read through any complaints to see whether they are reasonable and whether you’re still at ease dealing with them. Things that should motivate you to take a walk to the next store include bad service, especially after-sale service, poor returns policy, money issues such as not paying staff, and just a plain bad vibe. If you’re not feeling it, why commit to them for the long term?
- The competitors: Even if you’re a loyal customer at a bank, you don’t have to have all your products with them. It’s worth shopping around to find your best deal. It’s not uncommon to have your mortgage with one provider and other financial products with someone else.
What if you have buyer’s regret right now?
If you’re sitting there wondering how you got yourself into this mess or stuck with that home or car, it’s time to crunch the numbers, weigh up your options, and get back on track to your best life. Knowing how to get over buyer’s remorse when it hits will help you get back on track in no time.
The cooling-off law
If you’re thinking of applying the FTC’s cooling law or buyer’s remorse law, you won’t have any luck with property or cars. However, it will help you when you buy the Avon representative’s entire inventory on a whim. But the rules are very specific and the purchase needs to meet certain requirements.
For starters, the sale can’t be under $25 for sales at home or $130 for sales at temporary locations. Certain sales and products are excluded, which means you will need to read up before making a claim. And, there’s a 3-day period in which you have to return the item.
Credit card protection
Credit card protection may just be that knight on white plastic charging in to save the day. While there are stores that may have a no-return policy, there is some fine print in the merchant agreement that binds them to a returns policy. That’s if you use your credit card for the purchase.
Be ready for a tedious process, however, as you will need to jump through a few hoops to get the credit card company to oblige the return.
Let’s face it. There are moments where you buy something and even if you’ve researched it more than a new love interest’s social media, you might end up with a dud anyway. Especially if this is something you were looking forward to, like a place of your own or your dream car.
But even when you pick a car that’s simply too powerful to drive or you’re stuck with a fixer-upper on the good side of town, it’s not a given that you will always like your purchase. In fact, the longer you have it, the more you notice the kinks and creaks.
Hold back on the self-resentment. Instead, use the purchase as a learning curve for future big purchases.
Give it back
This is not always that easy, especially in the case of a car or house. But if the purchase is leaving you in a financial black hole then it’s worth doing the math to see whether you can afford to sell. Bear in mind that a sale soon after a purchase is expensive and you might not be able to recoup the costs. In the case of a property, conveyancing costs can run into thousands or tens of thousands of dollars which would leave you out of pocket.
The bottom line
You’re not always going to get it right. But to get those odds a little more in your camp, you simply have to apply some basic rules. Research, take your time and know when to spend and what to spend on. If you’re ready to give your finances a reboot, why not sign up for our Wealth Triggers course?