In life, big expenses often happen when you least expect them: an expensive vehicle repair, a broken appliance, or a medical emergency are all unexpected expenses that have to be dealt with in short order. In situations like these, many people turn to credit cards or alternative borrowing products like car title loan to cover the costs.
There are other times when we can see big expenses looming on the horizon and there is time to save up for them before they hit. Getting new furniture, buying a vacation package, or putting down a down payment on a new car all common examples of expenses you can easily anticipate.
But even when you are able to see an expense coming, it can be difficult to save for a big purchase, and you may find yourself frustrated that you can’t seem to grow your savings account. To help you be better prepared for life’s challenges, we’ve put together a plan that you can follow in 3 steps to start effectively saving for an emergency fund or your next big purchase.
Before you start saving, it’s important that you first establish the amount you will need for your purchase. Many businesses are less than transparent about how much an item or service will cost when all is said and done. And even if they are forthcoming about the final price, there are any number of hidden costs that can blindside you.
For example, something as simple as a buying a car can be loaded with hidden costs: title fee, documentation fee, compliance fee, floor plan fee, and advertising fee are just a few of a long list of hidden costs you may be on the hook for. Always do your due diligence in researching all associated costs of your purchases before you start saving and you won’t be blindsided at the last minute when you discover you haven’t actually saved as much you needed.
Figuring out the rate at which you need to save for a purchase may seem a little amorphous, but there’s an easy way to handle this issue. You probably have a rough idea how longyou have before you want to make the purchase, which means all you need to do is divide the cost of the item by the number of weeks you have before you buy the item. The resulting number is how much you’ll need to save from each paycheck.
Even if the purchase isn’t time sensitive, it’s a good idea to establish a date you want to buy the item and then save up for it using this method. Having a concrete deadline is always better than simply having a general timeframe when it comes to saving and budgeting.
Most banks offer free savings accounts if you already have a checking account with them. Take advantage of this by opening a new account that is specifically for saving money towards your big purchase. Keeping these funds in a separate account will remove the temptation to spend it on a day to day expenses.
Direct deposit can also be very helpful in reaching your savings goals. By automating the process of depositing a portion of your paycheck to your savings account, you won’t risk spending the money on other things or simply forgetting to make the transfer or deposit.
A little knowledge can go a long way, and if you follow these three easy steps, you’ll find yourself with the money you need for the next big ticket item in your life. By saving smartly, efficiently and consistently, you’ll be enjoying your new car, family vacation, or furniture set. It’s just another tool you can use to control your financial situation instead of it controlling you. Remember, self-discipline is the bridge between your goals and accomplishments.