Tips | October 22, 2018

Do you know why you’re buying? Five ways to make an informed decision

Spending isn’t all about checking budgets and thinking about the future. It’s important to know what you’re buying and why, too.


Let’s do something a bit different. We usually talk a lot about making better financial decisions, thinking more about future financial situations, how we can reduce our spending and increase our savings.

All these topics are very valuable and worth exploring if you are looking to improve your money management skills, but in this article, we’re going to give you some ideas on how to simply make an informed decision.

The big difference between an informed decision and a “good” decision is that a “good” decision usually revolves around not overspending, sticking to a budget and in general being sensible with your money.

An informed decision means that you know exactly what you’re buying and why, even if it is “irrational” or over your budget.

It doesn’t matter so much about it being a “good” decision – what is a good decision anyway? – but about whether you can back your purchase up with some arguments, even if that argument is “I just want it”. Here are some tips to help you reach an informed decision.

1. Options
In our world of glorious capitalism, there is almost never only one option available of the thing you want to buy, whether it’s a product or a service.

On the one hand, the number of options available can be a bit overwhelming and you might just pick the one in the middle, according to the centre-stage effect.

But on the other hand, you have the ability to look at various options to decide which one is most suitable for you.

Let’s say you want to buy a new smartphone. You wouldn’t just walk into a store and buy the first one you see (unless, of course, that’s exactly what you do).

You will have a certain set of criteria: I need a 12 MP camera, at least 64GB of storage and if it comes with a selfie-stick, I’m sold!

For many people, it’s a bit easier to compare smartphone options because it’s such a common item and quite a number of phone users seem to know at least the basic specs of their devices and what they want in a new one.

It’s more difficult for other things like a TV, a washing machine or even a house. So how do we make an informed decision about those?

2. Do your research
Many people may shiver at the word “research”, but when it comes to buying the right item for you, it’s often a necessary step.

A good place to start your research adventure is professional reviews. Can you find any expert advice about the thing you want to buy? Experts are great at pulling things apart and seeing if everything works as promised. If you can’t find any written reviews, try YouTube. Many experts have taken to making videos.

After you’ve taken in some expert knowledge (or if you haven’t been able to find any), start looking for user reviews. These can be invaluable to a decision-making process. If you find many negative reviews from people saying that the item doesn’t work or a service is terrible, you might want to reconsider spending your money on it.

One caveat, though: some of those reviews should be taken with a grain of salt. If there are 1000+ positive user reviews and only four negative ones, you’re probably fine.

Finally, you can ask someone who already owns whatever it is you want to purchase. They will be able to give their opinion and perhaps you’ll even be able to try it out yourself. Nothing beats a good old “try before you buy”.

3. Be critical
You can be critical on multiple levels when deciding what to buy. For one, be critical of the reviews you read in your research phase.

A few questions to ask are: “is this reviewer paid or sponsored by the company that sells the thing they’re reviewing?” or “is this person actually knowledgeable?” It’s good practice to do a quick Google search of the reviewer and see if you can find some info on them.

Further, be critical of marketing material. This may be a no-brainer, but advertisers are a clever bunch and their aim is to hype you up so you’ll buy their product or service without hesitation. Ask yourself if their promises sound a bit too good to be true.

Fun fact: many marketers like to throw impressive-looking statistics and impressive-sounding language around, but when looking closely, they lose their shine. Have a look at marketing content for smartphones, for instance.

They’ll often boast that their new technology is “breakthrough” and that their new processor is “the fastest they’ve ever built”. If this is their latest smartphone, you would indeed hope that it’s the fastest they’ve built!

Finally, be critical of your own reason to buy a certain brand. Often, people end up buying the same brand over and over because they know it. It has a sense of familiarity and unless the experience was awful, there doesn’t seem to be a reason to look at other brands.

While going for something you know and love is fine, it’s always worth having a look at what the competition is doing. Companies like to outdo each other and who knows what other brands have up their sleeve?

Maybe go down a slightly more unconventional route and see if there are any startups that are offering a similar product or service. Startups know they have to compete against major brands, so they could go out of their way to give you a better deal.

4. Wait for it
There are two important questions you can ask yourself that will help you make an informed decision. The first is: how urgently do you need the thing you want to buy?

You may be tempted to hit the buy button straight away, but could you wait? These days, there is pretty much a perpetual sale going on and if you keep an eye on the item you want to buy, there’s a good chance it will go on sale in the near future.

Unless you need something right now, maybe just add it to a wish list so you’ll be notified when it goes on sale.

Which brings us to the second question: will you still want to buy it after it while?

We’re very quick at deciding we want to buy something, but waiting to make the purchase could reveal that you didn’t really want it after all. If you can resist the temptation to buy, then wait a while and if you completely forget about it, you probably weren’t very interested in the first place.

It’s a case of “out of sight, out of mind”. If, however, it doesn’t go “out of mind” and you’re still itching to spend your money, you can be more confident to go for it.

5. Money in, money out
Money vanishes more quickly than we’d sometimes like and going into debt is preferably something to avoid. That’s why even an informed decision needs to take your current balance into consideration.

But rather than checking a budget or financial plan, just ask yourself: “Do I have enough disposable income left to buy this product or service?”

The answer will depend on your own view of what “enough” money is, but generally speaking if the purchase will put you into debt, the answer would be “no”.

If the answer is “yes”, then even the argument “I just want it” can be a valid reason for spending.

While it’s recommended to think about money and your future financial situation every now and then, it can bog you down if you are constantly monitoring your spending. Sometimes, it’s more about whether you want or need to buy something rather than sticking to a budget – as long as you have the disposable income.