The question of how to pay for a large purchase is tied to a series of either/or choices that every Ghanaian faces. Cash or credit? Save or borrow? Now or later? Many people believe they should save up before buying to avoid debt. Unfortunately, financial experts say there is actually no easy, one-size-fits-all answer to the cash-versus-credit question.
Saving up to buy a new smartphone or refrigerator often makes sense in Ghana's economic climate, because by not going into debt, you avoid interest that adds to the item's bottom-line price.
But what if you need that refrigerator right away because your current one just broke down during the hot season? What if, after a year of saving, the fridge has gone up in price more than the interest you would have paid to finance it? What if the appliance is on sale, and the store is offering flexible payment terms?
For Ghanaians navigating these decisions, understanding why saving money is important provides crucial context, but knowing when to borrow can be equally valuable.
Sometimes Ghanaians are forced to wait until they can buy something outright because their financial situation won't allow them to take on more debt. But even if you can finance a sizeable purchase, it may be better to put it off until you have the money in hand.
Saving up and paying cash may make it possible to negotiate a better price for a non-emergency big-ticket item. "Cash upfront" is a tried-and-true bargaining tool with a long history in Ghanaian markets, from Kejetia to Makola.
Although traditional savings account interest rates may not be particularly attractive, high-yield options like EasySave offering 10% annual returns may be a different story. Besides, any interest coming in is better than interest going out, making saving at least modestly preferable to going into debt.
With big-ticket items, like a vehicle or property, saving for a down payment allows you to get a smaller loan and reduce the overall cost of borrowing. This is particularly important in Ghana, where interest rates on consumer loans can be significant.
If you're struggling with savings habit, switching to a high-yield account can help your money work harder while you save for major purchases.
There are, of course, times when it makes sense to go into debt. One of the most common reasons is urgency. If your washing machine fails during the rainy season, or your phone breaks when you depend on it for business, you need a replacement right away. So, if you don't have sufficient savings to buy it outright, debt may be your best option.
A pending price increase or special sales opportunity—even when it's something that isn't an emergency need—could also push you into a decision to finance the item. With Ghana's inflation environment, where consumer prices have been volatile, it's important to make sure that, once interest is figured in, the savings of this financed purchase still amount to more than the savings you would realize by waiting until you could pay cash.
When a purchase represents something that will likely appreciate or generate income, buying now and going into debt might make sense. Examples include paying for education, buying equipment for your business, or purchasing a vehicle for commercial use.
The same logic applies if you decide to borrow funds instead of withdrawing them from your EasySave account, where your money is earning up to 10% annually.
For business owners, these savings tips can help you balance between maintaining cash flow and making strategic purchases through financing.
There is one way to have the best of both worlds, particularly relevant for tech-savvy Ghanaians. That's when you finance a large purchase through a reputable lender, then pay it off quickly within the agreed terms.
With Fido's Mobile Device Financing, for example, you can get a new smartphone and spread the cost into manageable payments, with the option to pay off early without penalties.
This approach can be especially valuable when you need the item immediately but have the cash flow to pay it off quickly. You get immediate access to the purchase while maintaining your savings for emergencies.
Understanding what makes a good loan and how to compare loans becomes crucial when considering this strategy.
It's important not to overextend yourself financially. Late fees, over-limit charges, and other costs can quickly wipe out the advantage of any savings from financing. Don't fall into the trap of failing to honor your plan to pay off a large purchase because you want to accommodate another big purchase. This is how access to credit can quickly become suffocating debt.
The psychology of spending plays a crucial role in avoiding this trap. Make sure you actually have enough income or savings to pay off the balance according to your plan. If you can't do that, avoid financing the purchase.
Building an emergency fund is crucial before taking on debt for large purchases. Learn how to build an emergency fund step by step to create a financial buffer that gives you more options when facing large purchase decisions.
The key is ensuring that your total debt payments don't exceed 30-40% of your monthly income. In Ghana's economic environment, where income can be irregular for many people, maintaining lower debt levels provides more flexibility during challenging times.
When deciding whether to save or borrow in Ghana, start by asking yourself how quickly you need the item. If it's not an emergency, saving up is often the best option, especially with high-yield accounts like EasySave that offer competitive returns. If it is an emergency, review your borrowing options and choose the one that costs the least while providing the flexibility you need.
If it's not an emergency, but you've concluded that buying on time makes sense given Ghana's inflation environment, double-check to make sure you are right before proceeding. Consider factors like price trends, your cash flow, and the total cost of financing.
Finally, especially when contemplating going into debt, make sure you have a plan for paying off that debt if the unforeseen happens, such as a cut in income or unexpected expenses. In Ghana's dynamic economy, having financial flexibility is more important than ever.
Whether you choose to save or borrow, the key is making an informed decision that aligns with your financial goals and circumstances. Remember, the best choice is the one that strengthens your overall financial position while meeting your immediate needs.
