Do you have some big Savings goals this year? Or maybe there are a few things you’d like to buy but need to save up for first. Saving money for big purchases isn’t impossible—but you do need to be smart.
Wondering how to save for big purchases? Honestly, it depends on a lot. You have your own unique and personal needs, budget and financial situation. So what works for you might not work for someone else. But, no matter your savings goal, saving money is essentially the same process for everybody. You need to spend less than you bring in.
How Do You Budget for Big Purchases?
If you’re looking for a place to start, we have a few suggestions that can help. Here are a few things you can do to save up:
- Define what the upcoming big purchases are, including amounts.
- Save by paying yourself first out of your income.
- Set SMART goals you can actually meet.
- Use the 50/20/30 rule to incorporate goals into your monthly budget.
- Open a high-interest savings account to maximize potential savings.
- Use microsavings/investing apps to make additional contributions to savings.
How to Save for Big Purchases in 2021 and Beyond: The Details
Following the list above can help you save money for big purchases this year without giving up your entire lifestyle. But you have to know how to put these tips into practice when saving for a big purchase. Get some more tips and details below.
1. Define Upcoming Big Purchases
Begin by determining what you’re going to save for and knowing that you can’t save for everything. Can you save $10,000 this year to put down on a house? Maybe, but you may not be able to save for the new car and a trip to Disneyland at the same time. How much you can save in a certain period of time depends on your resources and obligations, so this is a step that’s different for everybody.
Once you determine what you’re saving for, make it official. Write your goal on a whiteboard in the home office, put it on a piece of paper on the fridge and tell a trustworthy friend or family member about it. Writing it down and sharing it actually makes it more likely you’ll work toward the goal. Research shows that writing down and imaging a completed goal makes you 1.2 to 1.4 times more likely to successfully reach that goal.
2. Pay Yourself First
Once you start saving, know that you need to put savings first. You definitely shouldn’t save so much out of every paycheck that you can’t cover your bills. But if you decide that your monthly budget allows you to save $150 every two weeks, the first thing you should do when you get paid is move that money into a savings account.
The main reason for doing this is because it makes the money less tempting to spend. If you wait until you’ve done all your spending for the week, you might find that your $150 in savings was eaten up by running to the coffee shop, splurging on a movie and buying a new shirt you wanted but didn’t necessarily need.
You can help ensure you pay yourself first with a couple of tips:
- Break up your direct deposit. If your employer offers direct deposit, you may be able to ask them to deposit a certain portion of each check into a savings account while the rest goes into checking.
- Set up automated transfers. You can have a specific amount moved from checking to savings every week by automated bank transfer. That way, you don’t have to remember to take your savings out of the picture on paydays.
3. Set SMART Goals
SMART stands for specific, measurable, attainable, relevant and timely. This type of goal can be helpful when saving money over time for a large purchase.
- Find out exactly how much you need to make the purchase. “Saving enough to buy a car” is a decent goal, but you’re more likely to achieve a more specific goal, such as “saving $20,000 to buy a car.”
- When you’re specific, you can break the goal down in measurable bits. In the car example, if you want to buy the car in 2 years, you know you need to save an average of $834 a month.
- You need to be realistic. If you make $4,000 a month and have $3,000 in debt to pay, saving $834 a month is not really attainable. That would leave you with $166 for food and living expenses for the entire month. In that case, you’d need to reduce your goal, reduce your debt or increase your income.
- Make sure your goal is relevant to what you really want and need in the future. Do you really want a new car, or are you saving up for one based on some societal pressure to have one?
- Finally, set a deadline for your goal. That lets you break it down into smaller, more easily achievable chunks that lead up to that deadline.
4. Use the 50/20/30 Rule for Budgeting
The 50/20/30 rule of budgeting is a bit more flexible than the traditional line-item budget. In the line-item budget, you set the amount you want to spend on each area of your life, including options such as bills, gas, clothing, entertainment and savings.
The 50/20/30 rule only breaks your budget into three major categories. Half of your income goes to “needs”, which includes food, rent, health care and utilities.
Then, 30% of your income goes to wants. That includes options such as entertainment, travel, clothing that isn’t “necessary” and dining out. The rest of the income—20%—goes toward savings.
So, if you make $4,000 a month, that would leave $800 for savings if you can align all your spending and debt with the numbers above. You might want $400 of that savings for general purposes and retirement. That leaves $400 to go toward your big-purchase goal.
One way to manage your budget is with an app. Find a budget app that works with the budget and savings style you choose.
5. Open a High-Interest Savings Account
Once you start saving, consider maximizing it with a savings account that generates the highest yield. Shop for a high-interest savings account that balances risk and reward in a way that works best for your goals.
6. Use Microsavings and Investing Apps
Another way to implement savings is to use microsavings apps or investment apps such as Acorns. These apps let you make investments with small dollar amounts—investments that might yield more interest than even a high-yield savings account.
Microsavings also makes it easy to save money every day. These apps often let you round up your purchases at registers and have the change transferred to your savings. It’s a few cents a day, but it can add up.
How Can I Save $1,000 Fast?
The steps above work well for saving almost any amount. But if you’re trying to save up $1,000 for a starter emergency fund or other expense quickly, here are a few other tips you might try:
- Add a temporary income stream. Can you babysit kids in the neighborhood, mow lawns, make something to sell or pick up a seasonal part-time job? Having a side-gig can help you save money faster.
- Dump some of your wants temporarily. You can temporarily move a portion of income from wants to savings by canceling cable for a few months or cutting down on dining out.
- Don’t pay extra on debts. Paying off your debts is important and can be a good move if you want to save more money in the long-run. But it’s also important to have some emergency savings to keep you from driving up debt any time something unplanned occurs. Reduce extra debt payments to save that money faster.
You Can Save Money—But You Have to be Smart
There’s no magic answer for how to save for big purchases. It involves setting realistic goals, working to achieve them, and spending less than you bring in. Following the steps above can be a way to get started on that work. But don’t forget to create a safe place where those savings can be stored until you’re ready for the purchase. Consider signing up for a savings account via one of the partners listed in our marketplace today.
This article How to Save for Big Purchases in 2021 originally appeared on The Financially Independent Millennial.