Planning a large purchase? No matter what you are looking to buy, you should practice good savings techniques to get the money together. It can be overwhelming to think about saving up several thousand dollars, but if you stick to a plan it’s not that hard to do. Here are some tactics you should use:
Open a Savings Account
If you don’t already have a savings account, open one. When you put money in a savings account, you perceive it as less available, meaning you are less likely to spend it on something else. The money will still be there for emergencies, but you can “forget” about it for everyday expenses. And, of course, savings accounts earn interest, which helps you reach your target sooner. Even if you do have a savings account, making a second one for the specific purchase can help.
Set a Budget, and Stick to It
It can be tempting to buy a cheaper item early; but said cheaper item may not last as long (unless you get a genuine bargain). If you have determined you need $3,000, then don’t even shop around until you have that money. If you end up spending a little bit less, you can put it towards your next big purchase. Do lots of research so you know exactly what your big-ticket item, whether it’s a car or a vacation, will cost. (Pro tip: When saving for a vacation, know how much you generally spend a day on food and incidentals, then add about 20% to it just in case). If you are looking for a home down payment, then the same thing applies; but make sure you are realistic about how much house you can afford.
Split Extra Income
Make a rule of how much “extra” income will go to the purchase and how much to your normal savings. Then stick to it. If you really need the item, you might put 100% of extra income there, but generally you should split it so you don’t neglect your normal savings and/or emergency fund.
Set a Deadline, Even if you Aren’t in a Hurry
Now set a deadline for when you want to have all the money saved up by. Be reasonable and make sure you can stick to it. Divide the amount by the number of weeks (or, alternatively, budget what you can save each week and set the deadline accordingly). You can then save that money per week; and extra income may allow you to hit the deadline faster. But be sure to give yourself plenty of time. If you’re planning a vacation, set a goal to make the money of at least three months before you intend to take the trip, for example.
Write it All Down
Commit yourself to your savings goal in writing. People, in general, are more inclined to actually get something done if they write it down. If you need more motivation, involve your partner or a close friend and have them remind you to set aside X out of your paycheck, or double check where money from extra income is going.
Use Automated Tools
Your bank probably has a tool you can use that will automatically transfer a certain amount from one account to another on a certain date. Use this to make sure that you don’t forget to transfer your planned amount to savings. You may, of course, be more comfortable doing it manually, but for a lot of people automated tools are hugely helpful.
Make Sure you Track your Budget Properly
Lastly, something you should always be doing; properly tracking your income and spending. Having a budget is not just for large companies. By keeping track of exactly what you are spending, you will avoid mistakes such as forgetting to cancel subscriptions. (And then you can cancel those unused subscriptions and put that money into the savings account.
Saving for a big purchase or the down payment on a new home can initially seem overwhelming, but if you are smart about it you can cut the goal down to size and achieve it in a reasonable amount of time.
If you’re interested in reading more blogs about budgeting and finances take a look at our blogs Budgeting Tips For Newly Engaged Couples and How Do American Households Making 6 Figure Incomes Spend Their Money?