How to Prepare Your Budget for Big Purchases

What do dream vacations, home improvements, and cars have in common? They all require a lot of money! Unless you were born into a trust fund or won the lottery, you’ll need to save to make your dreams come true. How can you include major expenses into your budget without going deep into credit card debt? We have a few ideas.

Have a Budget

Before anything else, you must know how much money is coming in and how much and where the money is going out. Start with the things you need. These are all the things you must have to survive–shelter, utilities, transportation, clothing, food, etc. These are your priority items. Anything else is a “want.” Your wants should be further down on the budget priority list.

Identify Major Purchases

Do you want to redecorate the living room? Maybe purchase new kitchen appliances? How about a new car? Whatever you desire, make a list of those wants and then prioritize them from most to least important.

Determine the Purchase Price

Before you can do any further planning, you must know how much each item or project is going to cost. Shop around or get estimates from professionals so you’ll know how much to save.

Calculate How Much to Save

This part is easy. Once you know the cost, simply divide it by the number of months before you’ll need the money. That’s how much you’ll need to save every month. For example, you want to take an anniversary cruise. The cost is $3,000 and you’ll need the money in eight months. You would need to save $375 each month to reach your goal. You can save for one major purchase at a time or multiple purchases.

Set Up a Savings Account

Getting a separate saving’s account for major purchases ensures that the funds won’t be spent on other things. Try to make it an account that isn’t easy to access and refuse the ATM card if one is offered. If you can’t immediately access your money, you’ll have time to think about whether you really want to use it for something else.

Unexpected Expenses

Unexpected home and appliance repairs are major budget busters and you should be ready when they occur. One way to be prepared for these expenses is to invest in a home protection plan. A home protection plan is a service contract that covers appliances and home components. With a protection plan in place, you’ll never be caught off guard and your budget will remain intact.

Found Money

Bonuses, overtime money, yard sale earnings, raises, monetary gifts–any extra money can be put into your major purchase savings account. It can help you get the things you really want faster than you’d planned.

Rarely does a major expense just appear out of the blue. When they do, you should use your emergency fund and not the money you have saved for major expenses. Use the tips provided here to make sure you’re ready.

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