Big purchases require big savings.
But what’s a big purchase? Well, that totally depends on your financial situation, which means everyone’s definition of a large purchase is different. Technically speaking, a significant investment is anything that has a bearing on your debt-to-income ratio. Large expenses such as that fancy Mercedes you’ve always dreamed of or an extended vacation in Greece is not a leisurely affair and need to be carefully thought through. They typically require a major change of lifestyle and a fair amount of planning, budgeting, and perseverance.
Obviously, there’s no shortcut to saving money, but with a few tweaks to your spending habit, you can make the process easier and be on the fast track to saving money in no time. Here are some simple steps that help you turn your farfetched goals into a tangible reality.
1. Make a Financial Plan
First and foremost, financial literacy is crucial. Before you begin the journey of a thousand miles, you need to do some serious research and know precisely how much money you’ll need to save by a specific date. You can break down the target amount by the months/weeks/years you have until the payment is due. For instance, if you need $3000 for that vacation in Santorini, which is eleven weeks from now, you need to save around $272 per week until Santorini calls you, and you must go. These calculations might seem easy and straightforward, but they provide a good point of departure to put numbers in context and see if you can realistically put that much money aside.
An important aspect when it comes to researching your big-ticket item is considering not only the initial purchase cost but also the ongoing running costs. Depending on what your big purchase is, you should always plan for the worst and bank a little extra for the unexpected. It’s better to overestimate and have more than needed rather than not have enough and hit the buffers.
2. Know How Much You Can Afford
Unless you can afford to make the payment in one lump sum, you’ll generally find yourself falling into the trap of payday loan debts that seem to never go away. That’s why it is important to sit down and take a realistic look at your financial situation and review your budget. This usually takes the form of tracking your budget and understanding where your money goes each month. Doing this will give you a better insight into how much money you can afford to spend and where your big purchase will fit in.
The primary reason to make these sorts of calculations is to cut your expenses and create a budget plan that involves predictable and reasonable spending in discretionary categories such as food, recreation, and even vices. For instance, you’ll be surprised at the amount of money you’ll be able to save if you cut back on vices (e.g., smoking, coffees), spend less on clothes or gadgets, or if you skip a couple of restaurant dinners per month. The idea is to find the difference between your current income and what you can save so you can start funneling more paychecks into savings right off the bat.
3. Find the Best Deal For Your Big Purchase
There’s no need to jump at the first deal or price tag that you encounter in the market without doing a little homework first. Making snap decisions on the spot without giving it much thought leads to the most inadequate decisions you can make. Depending on your purchase type, you can always check online for any information that might lead you to the best possible deal. Once you find something reasonable, you can start to negotiate and probe sellers with low offers. Everything in life is negotiable, and with the right negotiating strategies, you might finish your savings marathon a lot earlier, and you may not need as much money as you first thought.
Another thing to keep in mind is determining if you’re poised to make the order at the right time. Ensure you can get a better deal if you wait a couple of months instead of making the purchase right away. It’s wise to research for any holiday sales or best buying periods to find an even better deal and avoid using up money that could be saved.
4. Open a Dedicated Savings Account
A good recipe for the success of any saving plan is to open a separate saving account specifically intended for that large purchase goal. When you have different saving accounts for different saving goals, you’ll be able to keep track of where your savings are going and for what purpose. Doing this will also keep you from accidentally using, for instance, the vacation account for your medical or other emergency expenses. Fortunately, most banks allow you to label accounts after your intended goals (e.g., Mercedes savings account, once-in-a-while fund) or use whatever name that will remind you why you’re saving money in the first place and make sure it goes to what it’s intended for.
5. Establish an Extra Source of Income
If you want to widen the gap between your income and expenses and speed up your savings rate, consider starting a side hustle to earn more money outside your day job. Just some additional hours per month can make all the difference and can add up quickly to big money. Besides forking out some extra cash, a side hustle helps you diversify your network and extend your skills in areas where you never thought you could make a contribution or generate additional income. The more money you scrape together, the easier it is to save and the faster you will achieve your dream ticket.
Money doesn’t grow on trees but rather is the fruit of labor and knowing how to secure your financial well-being. Whatever that large purchase is for you, you need to devise a sound financial plan, educate yourself about your opportunities, and make that purchase responsibly without having to worry about how you’re going to pay your bills on time or tend to other financial emergencies.
6. Start Saving!
If you’d like to start building a savings fun for your large purchase, Greater Alliance can help. Ask about our multiple savings account options or give us a call at 201-599-5500. Greater Alliance members also get access to Money Management which offers a convenient, engaging and complete experience so you can analyze all your finances and spending habits in one too.