There are things in life that require a few sacrifices. Some of these are major purchases such as a car, a wedding or a dream vacation.
However, being able to afford big purchases can take a lot of time, patience, and sacrifice. This can make it seem intimidating and even impossible, especially if you sometimes find yourself having trouble saving any money at all. However, even though big expenses like a down payment on a home can seem out of reach, there are still a few concrete steps you can take to bring you closer to your goal.
What Qualifies as a “Big” Purchase?
For starters, let’s define what a big purchase is. A big purchase can go anywhere from $1,000 to $10,000 and up. If you it takes you several months to save up to be able to afford it, then it’s considered to be a big purchase.
Let’s break down the tips and tricks on the best way to save money on a big purchase.
A Note on Loans vs. Savings
If you have a credit card or access to a personal loan, you might be tempted to use debt to pay for a big expense. Before you make that decision, though, compare the price of the purchase if you paid it in cash or by credit. Paying big purchases in cash is usually the better decision financially because it helps you avoid interest that adds to the item’s bottom-line price.
So if you cannot afford it and don’t need it ASAP, don’t buy it.
1. Look at the Hidden Costs
How much does that car you want to buy cost? How high is the down payment for that single-family home? How pricey will your week-long European tour be? The thing about large purchases is that you often have to look beyond just the sticker price to take the full cost into account.
See, that expensive car will come with a higher insurance premium and larger maintenance costs. That single-family home will involve taxes, furnishings, regular maintenance and unforeseen upgrades. The dream vacation may require you to have access to a healthy amount of emergency cash at a moment’s notice.
Be realistic about how much money you need to save. Then, think about ways that you can cut back.
Maybe planning your own vacation won’t be as hard as you think, and you can save on the hefty premium that comes with tour group travel. Perhaps you don’t need the exact make and model of the car you were looking at or can simply buy it used.
When you’re pinning down the hidden costs of your purchase, be realistic about what you can afford. Remind yourself that just because you may have to settle or a little less today, it doesn’t mean you won’t be able to have what you want at a future time.
2. Work Out a Timeline
Do you need to buy your car in six months? Or do you need to put a downpayment on a house in eight months? How about a wedding? Is your wedding date coming up in a year?
Knowing your timeframe will allow you to figure out how creative you will have to get to meet your goal. Say for example you want to buy that dream car within a year and you just need another $10,000. To save that $10k, you will need to put away about $833 per month.
However, keep in mind that if you are already saving money (perhaps for retirement, an emergency fund, etc.), then either that $833 will have to eat into those savings for 12 months, or you’ll have to find a way to make more money or cut expenses.
3. Set Up Direct Deposit and Automate Payments
If your income goes to a bank account, you can automate your deposit by setting a goal in your bank account. Each month, a specific amount of money is debited from your income where it goes straight to a goal in your personal account. An automated deposit eliminates the conscious effort on your part to physically set aside your monthly saving goals. You can open a separate bank account for your goal. This eliminates the risk of using that money for other purchases. It will also motivate you to save harder and faster when you see the money increase each month.
4. Reduce Your Expenses
As mentioned earlier, saving takes a lot of patience and sacrifice. Most likely, if you want to achieve your financial goal in the near future, you will need to reduce your expenses. This means you may need to:
- Cancel unused subscriptions you may have, such as magazine subscriptions, a cable subscription, or a gym membership that you rarely use.
- Use a shopping list and stick to it. Even when shopping for essentials, make a list before you head to a store to avoid impulse buys.
- Shop by unit price. Many supermarkets and stores display unit prices next to item prices. Unless you are concerned that you will not be able to consume a product before it expires, you should be shopping according to unit price. For example, a 20-ounce bottle of honey that costs $10 is actually cheaper per ounce than a 5-ounce bottle that costs $5.
- Buy items in bulk, but only if you will actually use them. If you purchase two $20 spray mops because the second one was half off, then you are just spending an extra $10 that you could be saving.
- Buy generic. Brand-name items sometimes come at a premium when many generic products are just as good. You can save money by switching to generic whenever possible.
5. Use Every Free Reward You Can Get
Does your car insurance provider offer a discount for paying your premium every six months rather than monthly? Does your bank waive your checking account fee if you sign up for direct deposit? Will your credit card company offer an extra 2% in cash back points for filling up at a certain gas station?
Look for these types of incentives and take advantage of them everywhere you can.
6. Look for Extra Income Opportunities
To help you save quicker, you can also look for ways to make money on the side. When it comes to side income, you may actually have many more options than you know.
Side income does not have to come from a part-time job folding clothes or doing deliveries on the weekend (although it certainly can). You may be surprised at the many ways you can make money online.
For example, if you have a green thumb and a few nice indoor plants, you can make a good amount of money selling rooted cuttings of those plants in online marketplaces like Etsy.
Think of all your bankable skills and take on a side hustle to accelerate your savings rate. If you have an extra space in your home, such as an unused pool house or a mother-in-law suite with a separate entrance, consider turning it into an AirBnB. It will take a little work, but you will get a higher return than if you simply lease it.
You also have the option to do freelance work, sell belongings you no longer need, advertise on your car, etc. When it comes to making extra side income, the biggest limit will be your time, energy level and creativity.