How to save for a big purchase? Little by little. The End.
OK, ok, maybe a little more detail would be nice. Saving for a big purchase can be really hard, especially in these days of high limit credit cards. A lot of people have $10, $20, even $50 thousand available on their cards. So why wait to buy anything? Just go out, purchase it and pay it off. That way, you get the item now and instead of saving a little every month, you’ll pay a little every month and already have the item! What a great idea, right?
The entire time you will be paying interest on your card, sometimes over 20%! In the bank, your monthly savings will actually grow a little. And, I do mean a little. 🙂 But a little is better than a big negative something. Also, what happens if you have an emergency need for money while paying off the card, you might miss a payment and that adds to your interest payments! Another benefit is that you might actually find you don’t want the item after saving for it and you can spend that money elsewhere.
Once you have decided what you want to purchase, get a pretty good estimate of the costs and where you are going to buy it. Include taxes and shipping on expensive items or really heavy items. That UPS battery backup might be $100, but it weighs 120 pounds and costs $50 to ship! Then, once you have a final cost, begin the saving.
I find that a separate account is the best bet. It is too much of a temptation to spend from it if you keep it in your normal checking/savings accounts. You’ll say, “Oh, I just need an extra $100, I’ll just use some of what I have saved.” If your item is small and you won’t gain any benefit from having it in the bank, a plain white envelope works great. I know, crazy right? But, an envelope hiding in the drawer is fantastic, you never see it, it just collects money, you can even write on the outside the current balance which is fun. Also, holding a wad of cash in an envelope is lots of fun.
Break your savings into amounts that you can handle every month. A great way is to always save an amount of money and put it in an envelope labeled, ‘Big Purchases.’ Then you always have a little seed money. You can up the amount if you need more for a larger purchase. Set a time frame where the item won’t be obsolete before you buy it. Tech stuff is notorious for this, although a newer model will come out so you can always buy that one. Or buy the original at a lower price.
Then, when it is time, get out your envelope and go buy what you have been wanting and know that you haven’t gained any debt from it. You also may want to just put it in the bank if you used an envelope and use your credit card. Then you get the benefits of using your card without the interest charges since you can pay it off immediately!