How to Buy the Right Luxury Goods

This article was updated to correct the author's name.

By Cherice Chen

NEW YORK (AdviceIQ) — What's on your dream list? A yacht? A Lamborghini? Or a house in a summer resort? Well into your career and financially secure with extra money to spend, you now look for a treat, a reward for all the hard work of your youth. Advisers, however, have some important caveats for you when you plan to make such luxury purchases.

When people buy high-value items, the excitement of realizing their dreams can carry them away. A financial adviser's job is "not to kill that excitement, but instill a sense of practical reality" in decision-making, says Ray Ferrara, president of ProVise Management Group, in Clearwater, Fla.

One common mistake people make when emotions are running high is that they fail to consider all alternatives. A used boat is much cheaper than a new one, for example; and renting a summer house can be more cost-effective than owning it. When people set their eyes on their desires, they even forget to talk to their advisers first, says Lawrence DeNoia, president of ITI Strategies, in Peekskill, N.Y. One of his clients, DeNoia says, showed up one day in a $60,000 yellow Hummer. DeNoia asked him why. He said he "always wanted one."

"An adviser's job is to make sure you don't run out of money," DeNoia says. "But because of this purchase, his money in the account could not last as long as I intended. That's dangerous."