LINE of SIGHT

Considerations for purchasing

By: Harold Young

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Are you anticipating a substantial purchase? It may be a new smartphone, laptop, or other things. Before you make that purchase, you need financing and need to know the best mode of payment.

There are two ways of financing our purchases: either you finance it from the past or the future. Financing from the past is allotting a portion of your income for savings and buying the item when your savings reach its cost. Financing from the future, on the other hand, is borrowing either from people or financing institutions. These include credit cards.

When you finance from the past at the moment of purchase, you instantly enjoy what you purchased without worries. When you finance from the future, though, you start to worry and work to settle your debt. From this perspective, most people will say it is better to finance your purchases from the past. However, there are instances when it is better to finance from the future, such as when the moment of purchase is earlier than when you finance from the future. This means you enjoy the item earlier than when you save for it and, eventually, purchase it.

The most common form for individual financing from the future is through credit cards. There are three benefits of using credit cards. First, you enjoy a grace period from the time of purchase to the time of settlement. Second, you have the flexibility of paying the settlement in straight payment or in installments. Third, most credit cards give you points on your purchases which benefits you after buying.

When you finance from the past, you can use a debit card. Some debit cards offer perks similar to those of credit cards. Needless to say, you cannot enjoy the first benefit of using credit cards: the grace period between the time of purchase and time of settlement. In contrast to the second benefit of using credit card, allotting a portion of your monthly income for savings needs discipline and commitment for a person who finances from the past.

Both debit and credit cards give perks, which vary depending on your purchase. It is best if you can take advantage of these perks. For example, there was a time when a leading bank provided fast food treats when credit card holders earn a single receipt worth P3,000, P6,000, and P12,000 on their credit card purchase. When your credit card offers such perks, it is better to revisit your scheduled disbursements (e.g., combining your weekly grocery bill worth P1,000 to a one-time grocery bill worth P3,000). You can also pay your telecommunications dues using a credit card instead of cash.

It does not matter how you finance your purchases, whether from the past or the future, as long as you are spending wisely and getting the best benefit from your purchase. When you plan for your significant purchase, consider how you will finance it and which mode of payment is most beneficial.
Mr. Young is an audit senior of Audit & Assurance at P&A Grant Thornton, Cebu. P&A Grant Thornton is a leading audit, tax, advisory, and Outsourcing firm in the Philippines, with 21 partners and over 850 staff members. For comments on this article, please email harold.young@ph.gt.com or PAGrantThornton.marketscomm@ph.gt.com.

Posted in Business