Whether you want to save for a cruise on a luxurious ship or a new laptop, the problem is the same: putting aside over $1000 is no easy task, but it can be done. Diligence, resilience and maybe a side gig can get you there in a couple of months. Winning the lottery doesn’t count as an option, putting aside $25 a week certainly does. Here are the 7 rules of saving for an expensive item, without feeling pressured and even collecting a few FICO benefits along the way.
1. Set a budget and stick to it
They say that “What gets measured gets done.” A vague goal like go on a trip, get a new DSLR camera or even a new car will make you slack since you don’t know exactly what you must do every day to get there. When you say I want this piece of equipment in 6 months and I need to save $1500 for it, you get a $250/month, roughly $10/day saving goal. This could translate into skipping coffee and bagel or walking to work instead of taking the tram. It is already a plan, instead of daydreaming.
2. Start saving cash
Depending on your goal you might get away with skipping a few nights out, or you might need to change other habits as well. First, create a dedicated space where all that money should go. Open a new savings account for these kinds of purchases. Don’t worry you will have other opportunities to use it, so it’s not a useless expense just for this one goal. Hunt the market for the most competitive interest rates.
3. Automate savings
Make sure you treat your savings for this large purchase much like you treat (or should handle) the minimum payment to your credit cards. Don’t cheat and don’t skip any programmed payments. To avoid such a temptation set a monthly or bi-weekly automated payment from your checking account to this savings account right after the payment day, so you are sure you have enough money. The out of sight out of mind approach works since you don’t have to stress over savings, just collect the benefits at the end.
4. Leverage raises and extra cash
Most people can suffer from lifestyle cripple. The more money they get, the more money they spend, without having an actual need to do so. For example, it is natural to spend more money if you become a parent, but not only because you got a raise, had a garage sale or landed a side gig. Evaluate your real needs and strive to save any additional cash. Since not even this large purchase is the most important thing, divide the newly available money between the dedicated saving account and other savings or investments you have. The rule applies to any additional income source you get during the time you are saving for the large purchase.
5. Pay attention to your hobbies
Hobbies are a pleasant moment in the daily grind, but they can also be a huge financial setback if they require expensive gear or traveling. Of course, one of the reasons for which you are saving could be related to your hobbies, like getting new equipment or entering a competition. Think about your motivations and choose to at least reduce the spending on the activities that are not helping you reach your goal.
Try choosing hobbies that require more of a time investment than money and those that could even turn into money sources of some kind or through which you learn new skills. Borrowing instead of buying, organizing a swap with friends or even hunting for free offerings such as joining a club or association can help you cut down costs without abandoning your hobbies altogether.
6. Conscious spending
When striving to save money you don’t need to cut down all expenses or live with the bare minimum, just make conscious decisions that you are ready to motivate and support. For example, avoid emotional or boredom shopping, create a list of items and stick to it and think about similar or substitute items you already have.
Make a mental or even a pen and paper evaluation of your needs and usage percentage. If you want to buy something that is not in your budget and will set back your savings for the big purchase, make a schedule on how often you intend to use it. Follow the schedule for a month and if you are on track, continue with your plan or adjust your desires.
It helps to keep a list of the items you have and consciously buy a new one just when the old ones are no longer usable. Nobody is suggesting that you walk around in rags, but having 5 different opened shampoo bottles is not necessary either. Simplify your life and finances by having just one item in each category.
7. Follow your dreams and grow your FICO score
Once you have enough money to get your purchase don’t just withdraw it and pay for the item. You can still use your credit card to buy it, but be sure to repay the amount from the savings account. Doing this is a bit of moving money around but with a real purpose. By being confident that you can repay the debt, you trick a bit the FICO system and grow your score with a few points.
Saving for an expensive item is a hassle, and most of us want instant gratification, so the tendency is to use the credit card. However, this is one of the worst decision because basically, it’s just spending, not saving. Instead, one should make a sound budget for the purchase and stick to it, save by automating payments and putting aside any extra cash. To be able to save for more expensive items it’s important to take a critical look at hobbies, spending and only get those items you need. Last but not least, try saving the money and when you have all of it pay with the card and repay the debt from your savings account to ensure a bigger FICO score.