How to Prepare Your Budget for Big Purchases in Life
Wednesday, May 15, 2019, 6:00 AM | Leave Comment
When I was young, my father had a jar full of change. The idea of the change jar as a symbol for saving money has stuck with me ever since.
As we age, the idea of the change jar expands into saving for loftier goals such as owning a house or car.
Here are four ways to prepare your budget for the bigger purchases in life.
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Maximize Your Down Payment to Minimize Borrowing
Very few people have enough cash on hand to simply purchase a house or a car outright. Most will have to take out a loan of some kind to complete large transactions of five figures or more. In preparation for your purchase, you will need to ensure that your regular loan payment is doable in the context of your creditworthiness and your general income and lifestyle. Remember: not all loans are created equal—the more cash you have on hand to put down when you make a purchase, the more favorable your loan terms.
If you are not certain what you can afford, try putting the amount of your expected monthly loan payment into your budget every month and deposit all or a portion into a savings account for a time period.
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Adhere to Timing
To get the best deals, timing is everything. If you are planning a vacation, timing your vacation properly will ensure that you get the most affordable travel deals. Purchase prices on homes and vehicles also depend on timing. For example, shopping late in the year and late in the month for cars usually generates a pretty good deal. To get the best value on a home, shop in the winter.
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Pay Yourself First
If remembering to deposit money into your savings account twice a month is difficult, simply take the “choice” of it out of your own hands. If you set up a direct deposit of a percentage of your regular paycheck into a savings account from the beginning, then the savings duty will already be taken care of before you even receive your check. Paying yourself first means putting YOU first, putting yourself and your goals into your budget automatically.
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Create a Separate Emergency Fund
Often we try to save money for our big purchase goal when along comes a disaster that wipes out all or a significant portion of our savings. This can be a car accident or a health emergency. Such events are very demoralizing if you’re working towards a house or car. In order to prevent this, it’s important to have an emergency fund set up separately before you begin developing your larger savings goals.
House Method recommends keeping your savings account for large purchase goals separate. There are ongoing debates about how much should be in an emergency fund. The good news is, if you have $500 in your emergency fund, you are already doing better than almost half of Americans. The benefit of an emergency fund is that you will hopefully do less damage to your overall savings just by creating it.
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