A financial journey typically includes several twists and turns – such as understanding how to manage spending, build savings and control debt. There might be “speed bumps” in the form of unexpected changes in income.
Along the way, you might also navigate milestone purchases such as financing a home or car. When considering a big purchase, the destination is within reach when you steer through the following five financial steps.
1. Look at Your Financial Picture
Start by considering what you can afford given your current income, expenses and other debt obligations. Get a handle on how much money comes into your household each month, and where the money goes. Make sure to consider your net income-what is available to you after taxes. Use Greenpath's Budgeting worksheet to calculate your monthly expenses and income to get an idea of what you have to work with, what your commitments are, and what they have remaining to devote to their goals.
2. Check Your Credit Score and Report
Checking your credit score and report is key when considering a big purchase like a home or car.
Pull your credit report from AnnualCreditReport.com and follow the additional instructions to see your current credit score–which influences your overall cost of financing your purchase. The lower your credit score, the more likely you will have a higher interest rate and greater overall cost.
3. Research Your Financing Options
For a home purchase, that means giving yourself enough time to explore mortgage options including types of mortgages, terms, fees, interest rates and other information. Consider getting a preapproval or prequalification letter from a lender, especially in a competitive market with low housing inventory.
If you’re looking to finance a car or other big purchase take inventory of the most competitive loans offered by the dealership, credit union, bank or other lender.
4. Plan Your Purchase
Timing is everything, and having a plan in place for when to pull the trigger can make all the difference. Do you have enough in savings to provide a good down payment on a home or car? Is there a certain time of year that special financing or promotions are generally available?
Now’s also a good time to find someone you trust to help you carry out your big purchase – if you’re buying a home, ask friends or families for a real estate professional they can refer.
Having someone in your corner who can help you to understand your options and know warning signs to look out for can make all the difference. For a car purchase, do you feel like the dealership is able to provide advice and guidance? Have you taken the time to research vehicle make and model from a reputable source of information?
5. Make the Deposit
Finally, get ready to make an earnest money deposit for your purchase. In the case of a home purchase ,which indicates you are a serious buyer. Generally, earnest money deposits range from 1% to 2% of a home’s purchase price and are only refundable under specific circumstances.
The Journey Ahead
While not an exhaustive list, these steps should help prepare for the financial road ahead. As you travel along your financial journey, take advantage of financial counseling and guidance provided by the trusted national
nonprofit GreenPath Financial Wellness.
To help spread the knowledge, read our Understanding Financial Terms blog post to become even better equipped to make any of your upcoming big purchases.
