How to Save for Big Ticket Items
Too often, when faced with the need to make a major purchase, we find ourselves having to turn to consumer debt to fully pay for it. Due to lack of planning or unexpected timing, these one-time big expenses often end up costing big money for years to come. What is the point of shopping around to find a great deal, only to end up spending thousands of dollars in interest charges and credit card fees?
Big-budget items – like vacations, weddings, home repair projects, holiday spending, a new car, or even a new baby – are things we know we will one day need money for. Saving ahead for these expenses is the best way to keep common life experiences from turning into even more costly debt. But finding money for savings amid an already-tight budget can seem like a mathematical impossibility.
What are some easy ways to save up for a big-ticket items, even on a small budget? Read on for six helpful tips.
Saving Money Doesn’t Need to Be Complicated
- Name Your Goal. The first step toward saving for major purchases is to decide exactly what you are saving for and how much it is going to cost. Whether it is family vacation or a down payment on a house, do your research and assign an exact dollar amount to your savings goal. Divide that goal by the number of months you have until you plan to make the purchase, and the resulting number is the amount you need to put into savings each month in order to reach your goal on time.
For example, if your vacation 12 months from now is going to cost $1,200, divide $1,200 by 12 to get $100, the amount you need to save each month between now and then. If you know that you are going to need to buy a replacement car in two years, and that the car will likely cost $10,000, divide $10,000 by 24 to get $416, the amount you will need to save per month in order to buy that car.
- Put the Purchase on Hold. You’ve done the math, and you determine that the amount you need to put back each month is too far outside your budget. If you are not able to save that much and still maintain all other essential expenses, you need to make some adjustments. Put off making the purchase for a while to give yourself more time to save. Shop around and try to find a cheaper item. Negotiate the price with vendors. Consider buying the item used. You can save a lot of money if you take the time to compare prices and really consider all of the options without rushing into a decision.
- Pay Your Savings Accounts First. If you’ve planned funds for savings into your budget, sock them away before you have a chance to spend them on something frivolous. Out of sight out of mind is good wisdom here. It is important to mention that this should be budgeted savings only. Do not skip debt payments or other essentials in favor of savings.
- Automate Your Savings. Make transfers into your savings accounts, and sign up with your bank to make them automatic. If your bank allows for automatic transfers, set up those transactions to happen on payday, so that you don’t even have to think about it.
- Set up a “Sinking Fund.” Keep the money for big-ticket items separate unto itself.
- Sinking funds are accounts that you set up for a specific purchase. They are different from an emergency fund (money set aside for unexpected emergencies such as car repairs or medical bills) and separate from a general savings account.
- Sinking funds have a goal (such as “Wedding Account”), and only money to pay for the goal goes into that account.
- Consider setting up a separate sinking fund for each major purchase you are saving toward.
- If you use a cash or envelope system, make separate envelopes for each major purchase or “account.”
- Save Your Change. This may sound small, but if you are on a cash system, this one action can add up to big savings. Put all of your pocket change in a jar at the end of every day, and you will be surprised how much you can accumulate over the course of a month, two months, six months, or even a year. The “change-jar method” is a well-known secret of avid savers, and it is especially handy for one-time or rarely made purchases such as a new piece of furniture or the occasional appliance replacement.
The benefits of saving in advance for a major purchase are more than simply financial. When you are able to pay for your dream vacation or your daughter’s wedding in full, you are free to fully enjoy the experience, knowing you won’t be paying for the party for years to come.
Regularly saving money takes discipline. It is not something that comes naturally or easily for most of us. That is why cultivating a habit of saving is so important, especially saving for major purchases. But once saving becomes automatic, you get used to it, and it’s just another item in your monthly budget. If you have other questions about ways to get and stay out of debt for good, our friendly team at American Credit Foundation is available to help you with knowledgeable advice and expert tips.