What Is a Large Purchase?

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What Is a Large Purchase?

Is it a car, a vacation, a house—or just a washing machine? How "major purchase" is defined will vary from family to family. It might be in a family’s best interest to take a look at how a business might make the same decision.

How would a business look at it?

Some small businesses might make the best consideration how long the purchase will be of value. If the purchase will be of value for a year or longer, it would be considered a major purchase and would require detailed analysis, perhaps even capital budgeting. If the purchase will only be of value for less than a year, they might just get it without budgeting for it. You may not have that luxury if you don’t have available cash.

Like other small businesses, you may use a dollar amount to determine whether a purchase is major. $500, $1000, or even $10,000 may be the point where you decide this purchase is not a normal budget expense. Rather this purchase would be considered "major" and require special consideration such as budgeting for down the road, saving, or even a loan or credit.

Is it already in your budget?

Still another way to decide if the purchase is major may be even more simple: If the purchase is not already in your current monthly or annual budget, it is a major purchase. Even buying new cookware can be a major purchase if not already budgeted for.

As an individual or a family, consider that overspending on a purchase may have a more devastating impact on your finances than on a small or large business, and may make it more difficult to recover from such a mistake.

Compare the benefits and the costs

If you find yourself having to chose between two—or more—purchases, comparisons should be made between the benefits and costs of all the purchases.