Major purchases require major savings. And let’s be honest: Not everyone is a natural at budgeting and saving money.
Then again, few life skills come naturally to any of us. Anyone can learn to budget and save money better, and sooner is better if you want to achieve larger financial goals anytime soon.
How to Start Saving for Big Purchases
Unlike swiping your debit card for a new sweater, saving up for major purchases requires patience, discipline, and strategy. It likely involves some sacrifices on your part, such as ditching the $5 daily Starbucks latte, if you want to reach your goal sooner rather than later.
Follow these steps to save money for life-changing purchases faster.
1. Research Affordable Options & Set a Savings Target
You may not need as much as you think you do.
Have you considered buying used rather than new? There are plenty of reasons to buy a used car over a new car or skip the new construction home in favor of a fixer-upper or restored historic home. If you’re looking to buy electronics, such as a laptop, you can buy a late model less than a year old through peer-to-peer services like Craigslist or Nextdoor for a fraction of the cost of a new model from the store.
Question your assumptions, because some things you should buy used rather than new.
Buying used isn’t the only way to save money on a major purchase. When you buy a home, location matters far more than whether the home was new construction. According to Zillow, the median home price in San Francisco was $1,405,199 in late 2020, while in many parts of the United States (such as Baltimore), homes cost a tenth of that. And you can live luxuriously on $2,000 a month in some countries.
Before you can create a savings plan, you first need a savings goal. Spare yourself months or years of unnecessary delays by researching the most affordable path to your desired results. How much will that path cost you? That’s your savings goal. But be mindful that if it takes you a while to save, you may need more money than the original goal.
2. Set a Timeline
When you set a goal, it needs a time limit. Otherwise, it lacks any sense of urgency and dies a slow death in the “maybe one day” bucket of procrastination.
Besides, without a timeline, how do you know how much you need to save each month?
Aim for a realistic but challenging timeline that pushes you a little. It should stretch you to achieve it, but it shouldn’t be so unattainable as to set you up for failure. In some cases, your goal may represent a moving target. For example, home values constantly change, and the longer you wait, the more you’ll likely need as a down payment.
3. Open & Label a Separate Savings Account
We all know money can burn a hole in your pocket, even if that pocket exists virtually as a bank account. People tend to spend the funds sitting in their checking account.
First, open a high-yield savings account with an online back like CIT Bank. This should be specifically for your big purchase goal. Most banks allow you to label your accounts, so name the account after your goal — if you’re saving for a mortgage down payment, call the account something like “Down Payment for Our House.”. Every time you log into your bank, the account name will remind you why you’re saving money rather than spending it on dinners, clothes, or gadgets.
And don’t feel obliged to open the savings account at your current bank. Many people find that if they can easily access their savings accounts, they raid them rather than leave them untouched. Open your savings account at a separate bank if you occasionally succumb to temptation. It will make it that much harder to raid.
4. Automate Your Contributions
People are fallible, and discipline always fails you sooner or later. So don’t rely on it.
Instead, set up automated recurring payments from your checking account to your labeled savings account. Schedule these for every single paycheck within a day of getting paid so you never have a chance to spend the money earmarked for savings.
Most employers even allow you to split the direct deposit for your paycheck, making it even easier. Part of every paycheck can then go directly into your savings account without you ever seeing it.
You can use third-party savings automation apps to transfer money based on specific triggers. For example, apps like Acorns round up every purchase and transfer the spare change to your savings account.
5. Commit All Raises, Bonuses, and Found Money
Whenever you collect money you weren’t expecting, move it directly to your savings account.
That could mean a bonus at work, your tax refund, or an inheritance. The same logic applies when you get a raise. Rather than thoughtlessly spending more like most people do (known as lifestyle inflation), freeze your current spending and adjust your automated savings transfer upward by your raise amount.
It’s less fun than going out to dinner more often, but you’ll thank yourself later when you achieve your big purchase months or even years earlier.
6. Avoid Derailment by Unexpected Expenses
One of the most common budget problems is planning for typical monthly expenses and ignoring irregular and emergency expenses.
Emergencies happen all the time. They take different forms — this year it might be a $2,000 car repair, next year a $5,000 medical bill, the next a $10,000 roof replacement. Stop looking at emergencies as outliers, and build an emergency fund specifically for sudden, unexpected bills.
Similarly, create a savings account for irregular expenses like gifts. According to historical data from the National Retail Federation, the average American family has inched closer to spending $1,000 on the holidays each year, with 2019 spending nearly double the average in 2002, when the NRF started tracking it. If you don’t budget for holiday costs throughout the year, expect your budget to go up in flames come December.
And gift costs don’t end with the holidays. Every year, your budget gets hit with countless special occasion gifts, such as birthday gifts, wedding gifts, and baby shower gifts. Budget for irregular expenses monthly so you aren’t surprised by these all-too-predictable costs.
Otherwise, your big purchase savings will be ripe for the raiding, derailing your progress.
7. Pause the Plastic
Credit cards make it easy to spend money you don’t have and rack up credit card debt. And that can throw a monkey wrench in your savings progress.
Payment data from Shift Processing shows consumers spend up to 83% more when they swipe with plastic rather than counting out cash bills.
Consider putting a hold on your credit cards until you reach your savings target. You can remove it any time, and if you don’t feel comfortable with a hold, take your credit card out of your wallet and tuck it in a safe spot. Try the envelope budgeting system for a few months. You’ll spend significantly less when you have to physically pay for every expense with cash.
8. Get Creative to Boost Your Savings Rate
If you want to hit your savings goal and buy your big purchase faster, think outside the proverbial box to save more money.
If house hacking won’t work for you, try some simple hacks to save $12,000 per year.
9. Earn More Money
You can also widen the gap between your earnings and expenses by generating more income.
Alternatively, start a side hustle to earn more money outside your day job. You could delivery groceries with Instacart or start freelance writing. Beyond bringing in some extra cash, it can also help you develop new skills and expand your network. And you’d be surprised how many side hustles grow into a full-time business generating more income than your old day job.
The more you earn, the easier it is to save, and the faster you can afford your big-ticket item.
10. Consider Investing the Money
If you only need to save for a few months for your big purchase, a high-interest savings account suffices. But if your time horizon measures in years rather than months, earning a return on your savings helps you reach your goal faster.
Even so, look to low-risk, stable short-term investments for holding your savings. The last place you want to find yourself is having lost money rather than earned it.
At the same time, you also don’t want to lose money to inflation. Consider extremely safe investments like Treasury inflation-protected securities to earn a return on your money and avoid inflation.
11. Share Your Goal With Others
When you share your goals with friends and family members, you commit to those goals. Suddenly, you find yourself accountable for meeting them.
A 2019 study out of Ohio State University found that people who share their goals with others — particularly those they see as higher status — significantly improved their odds of meeting their goals.
Commit to your goals to several people you respect, and check in with them every month to update them on your progress. The added social pressure helps keep you on track for hitting your savings goal.
12. Negotiate a Lower Price to Bring the Finish Line to You
Everything in life is negotiable. And the more expensive the purchase, the more room there is for negotiation.
Home sellers accept low offers all the time. The same goes for car sellers, both private owners and dealerships. With effective negotiation strategies, you may not need as much money as you first thought.
When the finish line comes into sight, start probing sellers with low offers to see if they will come to you. You might find an early end to your savings marathon.
Major purchases feel daunting, especially when you first start saving for them. But the sooner you start, the sooner you can afford the big purchase you’ve been eyeing and change your life for the better.
When you hit your target and make your purchase, keep saving aggressively. You’ve established good financial habits, which is the hard part — continuing those habits is easy. Look longer term, think bigger, explore financial goals like financial independence and early retirement, or setting aside enough money to cover your kids’ college tuition.
Few people regret saving more money and building wealth faster. Keep saving, and before you know it, you’ll hit ever greater milestones than your original goal.
What large purchases are you saving for? What are your plans to reach your savings goals?