Facing a major expense such as buying a new appliance or car can be stressful when you don’t know how you will raise the money. The key to handling these big-ticket purchases is to create a savings plan that, over time, will help you reach these financial goals. In this blog, we will discuss ways you can plan better so you can successfully budget for any big expenditures coming your way.
Identify Your Expenditures
The first step is to identify your big purchase needs so you can prioritize them, according to Ramsey Solutions, a website from radio host and personal financial expert Dave Ramsey. The new year is a great time to consider these things, and your home is a good place to start. For example, if your washer and dryer are old and inefficient it may be time to replace them. Perhaps your car needs a major repair or it's time to get a newer one with better fuel efficiency.
Next, consider any personal events, such as weddings or reunions, and any travel plans that are coming up in the next few years. Remember, you’ll need to book your travel and lodging arrangements early to lock in the best rates.
Once you have identified all your potential upcoming expenses, prioritize them. Start at the top and determine how much you’ll need to save for each item. With your list in hand, it’s time to review your budget.
Review Your Monthly Budget
Your monthly budget is essential for keeping your expenses in order by ensuring your spending does not outpace your income. Start by evaluating all your spending and categorizing into two main buckets: essential living expenses (such as rent or mortgage, utilities and groceries) and then discretionary spending, such as entertainment (movies, concerts, subscriptions and sporting events) dining out and similar types of expenditures.
Once you’ve sorted between the necessary and discretionary, start considering ways to cut back on the discretionary so you can save for your big purchases. Reviewing your monthly budget can also help you reduce wasteful spending, making you feel better about using those funds to save for something more important.
How to Budget for a Big Expense
Once you’ve reviewed your budget and know where you can cut or trim, use a savings strategy sometimes called a sinking fund to save for your purchase, according to Experian. Determine how much money you will need and divide that by the number of months you have to save for it. For example, if your expense is $500 and you have 10 months to save, you’ll need to set aside $50 a month to meet your goal.
Using this type of saving method is a simple way to break down the cost of a big purchase into small, monthly savings without the need to borrow money. Financial institutions, such as credit unions, typically offer several types of products that can help you save for your big purchase. Let’s explore these financial tools.
Savings Tools to Reach Your Goals
Finding the right savings product will help you reach your goal without interruption. Ideally, select an account that will be used to only save money so you can keep it separate from the account you use for everyday spending. Typically, credit unions like Travis Credit Union offer savings accounts, money market accounts (MMA) and certificates to help you save. While a basic savings account will work, selecting an MMA or certificate will earn you more interest.
Go online and research these products to see which one will work best for you. Make it easier by setting up direct deposit and having money sent directly to this account each payday. You can also use your financial institution’s digital banking tools to set up automatic transfers from another account to make saving easy and convenient.
Once you are all set up, commit to saving regularly. Remember not to use the funds for anything else except your savings goal if possible.
How TCU Can Help
Travis Credit Union is focused on your financial wellness and can help you save for all your financial goals. Along with savings products, TCU’s Knowledge Base provides free, online financial courses so you can learn how to better plan, save, spend and borrow. You can also check to see if you’re pre-qualified for a credit card or loan by using TCU’s pre-qualification portal, which may let you purchase that big-ticket item faster.
Learn about all the things you can do at TCU. Visit traviscu.org today!