You have been working hard to be financially responsible and maybe even started saving for small things like a new appliance or a special trip. Now it’s time to think about saving for those big-ticket items like a new car, a house, or even your child’s education. When faced with tens of thousands of dollars in expenses, you may begin to feel a bit overwhelmed. Relax! You CAN save for that big stuff. But first you have to make a plan:
- List your goals. What are you saving for? If it is a house, then estimate how much you will need for a down payment; closing costs; renovation; etc. If you expect to buy all new furniture when you move in, be sure to add that to the list.
- Adopt a realistic view: Once you have your “wish list” it may be necessary to cut back. Be practical. What can you reasonably expect to spend on that house? Will you be able to afford all new furniture? Now is the time to figure out what you need and can afford.
- Set a timetable: To help keep you on track, set a schedule for saving a certain amount of money. By having a specific goal in mind, you will be better equipped to make emergency money decisions along the way.
- Start living on your new budget right now. A wonderful way to not only save the money you need for that big ticket item, but to also see if the cost is manageable is to set your new budget now and begin living on it. If you expect to have a monthly payment once the purchase is made, then add that amount to your budget. For instance, if you expect a mortgage to run $1,800, and your rent is currently $900, then add the other $900 (plus the cost of taxes, insurances, maintenance and increased utilities), to your monthly budget. This will allow you to see if you can handle the increase in monthly payments, plus give you an instant savings account for that down payment.
- Set short and long term goals. When saving for large cost items, the road ahead can seem long and arduous. Face this challenge by setting both short and long-term goals. Maybe you want to remodel your kitchen and buy all new appliances. Instead of looking at the big (and expensive) picture, begin saving for each appliance. This is a strategy that can help make the entire process easier to bear.
Track Your Savings
There are many ways to track your savings. You can keep a detailed excel sheet outlining each expense and tracking your savings. You can keep a list of savings deposits in a notebook. Some people simply open a separate savings account dedicated solely to that expense, making it easy to track deposits and withdrawals. Others invest that money in short-term CD’s or money market accounts, so the money is kept separate from regular income.
It doesn’t matter whether you take a high-tech approach or only post a hand-drawn thermometer on your refrigerator that notes how much you have saved for your special purchase. The key to staying on the savings track is to set a goal, make a plan, and stick to it! Once you begin to see those small deposits add up, you will feel more confident in your ability to save for the big stuff while also enjoying the process.