Budgeting is a strategic process. This is especially true when budgeting for big purchases! Your budget will show how far your income can take you. Often times, your income will allow you to cover expenses and hopefully a little savings. But what happens when you need your income to cover your expenses, add some to savings, and budget for a high priced item? The CGS Team is sharing some tips to help you stretch your budget when a big purchase is around the corner. The earlier you start budgeting for it, the smoother it will be when the time comes to make the purchase.
Budgeting for Big Purchases
Give Yourself a Timeframe
Are you saving for a down payment? Do you need a new car to get to work? Trying to create an emergency fund quick? Regardless of your big purchase (or big savings goal), you need to give yourself a timeframe for reaching that goal, a reasonable timeframe. Be honest about your current situation when deciding when to make the large purchase.
The goal is to avoid financing and pay for your purchase in cash. Given your current income, expenses and savings, how quickly can you save for your big ticket item? Giving yourself a timeframe will let you know how long you need to budget specifically for that item. Things may be tight for a while, but at least you will already know what to expect.
Review & Update Your Current Budget
Since a budget is very detailed and already tells your money where to go, it needs to be reviewed and revamped to account for your big purchase. Are you going to stop putting money into savings in place of saving for the big item? Are you going to split your savings between both?
Depending on the timeframe you gave yourself, do you need to cut back in certain areas of your budget to stay on track? Review your current budget and determine how much you can save for your big item by your due date. If your item is $3,000 and you are currently saving $350 a month after expenses, then you can expect to reach your $3,000 in about 8 ½ months. That’s without contributing to your regular savings.
Can you afford not contributing to your own savings for 8 ½ months? Do you have an emergency fund in place, just in case something else comes up? All of these questions need to be asked when you’re budgeting for a new item.
Create a Separate Savings Account for the Purchase
Once you have decided how much of your income you can allocate to saving for your big purchase, create a separate savings account just for that purchase. Have your designated amount transferred or deposited into the account. If your budget is weekly, deposit your amount weekly. If your budget is bi-weekly, deposit the money bi-weekly.
If your budget is monthly, we recommend depositing your money more consistently. Waiting a whole month to transfer your designated amount into its respective savings account leaves the door open for something to come up. Spending that money will only set you back from your original goal date.
Your big purchase item should not be an impulse buy! If an emergency comes up that requires a large amount of money, that’s what your emergency fund is for. Your budgeted big purchase should be thought out in detail and made at the right time.
There should not be a reason for you to put your big purchase on a credit card. Save for the purchase and pay in cash. If you pay with a credit card, even if you have the cash for it, you may be tempted to keep the balance on the credit card. This will only result in high interest fees that you will have to pay, on top of the big purchase balance. Be patient with your budget and make the purchase when you truly can afford it.
Related: 8 Ways to Save For Your Next Goal
It’s not always easy to stay on a budget, especially when it’s tight. Try to keep your end goal in mind and when you are tempted to buy something out of budget, remember why you’re working so hard. When the time comes to make your big purchase, you are going to feel so much better knowing that you are still on track after.
If you need help with your budget, then the CGS Team is here for you! Get your CGS Personalized Budget Plan today and we can help you budget for the big stuff! Do you have any tips for budgeting for purchases outside of your normal spending? Have you spent money too soon? Share your thoughts by leaving a comment below!