Approximate reading time: 3 minutes
How do you save for a large purchase?
The following question was posed in a group in which I participate:
“What is the best way to save for a laptop?”
The answers were varied:
- Cut back on groceries
- Cut out entertainment
- Have a no spend week
Although those are great suggestions, they are actually suggestions on how to cut expenses.
There is a difference between cutting expenses and actually saving, or setting aside, the money.
What happens to the money that was “saved” by cutting those expenses?
Experience has taught me that having extra money means spending extra money.
Unless that money is moved to somewhere, a savings account or even a shoe box labeled “laptop”, the odds are very high that the savings realized from cutting expenses will quietly and quickly disappear.
While cutting expenses is a great way to begin saving, budgeting for a large purchase ensures you move steadily closer to your savings goal.
So, how do you save / budget for a large purchase?
I am a firm believer in a zero-based budget. (Find out what that is here) In short, a zero-based budget takes your net pay and assigns every dollar to a category until your net pay is reduced to zero.
Examples of categories are: mortgage / rent, electric, gas, groceries …(you get the idea).
When you begin saving for a large purchase, that item becomes its own category.
In this scenario, a category is now “lap top”.
How much you budget depends on the following questions:
How soon do you want to make the purchase?
In the laptop situation, the planned purchase was four months away.
What is the cost of the item?
Sticking with the lap top, the cost was anticipated to be four hundred dollars.
Out of how many pays per month will you be able to take the money?
Most people typically get paid twice per month so that is what I will use in this example. However, you may only be able to squeeze the money out of one pay, or even only when you get that rare third pay in a month. This has to work with YOUR zero-based budget.
Now come up with the amount to go in the category
In this instance it would be 50.00 per pay (400.00 dollars / 4 months / 2 pays =50.00 per pay)
Each pay day the money that is budgeted to purchase the item is moved to a designated account, just as though it were a bill.
Over time, that account will grow until you reach your goal and you are able to purchase the laptop (or whatever it is for which you are saving).
This method works for more than just “fun” large purchases
Any large expenditure that you may be anticipating can be budgeted for in this manner. Property taxes come immediately to mind.
Recently I saw a great quote that is so very appropriate for saving for a large purchase: “Small progress is still progress”
If there is a large purchase looming in your future (like a washing machine whose loud noise you choose to ignore 😉 ), I encourage you to pull out your zero-based budget, add a new and growing category and begin saving for that future large purchase.
Your future self will thank you.
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It’s a little thing that would mean a lot to me!
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