What should you do before making significant purchases?

Evaluating your net worth and cash flow before making significant purchases is essential as it provides a comprehensive understanding of your financial situation. By examining your net worth, which is the difference between your assets and liabilities, you gain insight into what you truly own versus what you owe. This analysis helps you to assess whether you have the financial capacity to make a large purchase without jeopardizing your financial stability.

Furthermore, assessing your cash flow, which includes your income and expenses, allows you to determine if you can afford the purchase comfortably without relying on credit or depleting your savings. This step ensures that you are making informed decisions, aligning your spending with your long-term financial goals, and avoiding potential financial strain or regret after the purchase.

Taking these steps helps cultivate responsible financial habits and enables you to prioritize your spending based on actual financial circumstances rather than emotions or external opinions.