We all know budget planning for big purchases, in addition to everyday budgeting, is one of the most important things you can do for your financial well-being. It gives you great relief to have control over your finances, to know what you can rely on and how to spend your money wisely. But financial planning also gives you the opportunity to have money set aside for things you might need, and that includes big purchases. Nothing compares to the freedom and happiness you feel when you can afford something that will make your life better.
But at the end of the day, we’re all human and we make budgeting mistakes along the way, so that’s why it’s important to always have a plan in place not only for unexpected expenses but also for new things that require more money. Whether you intend to buy a property, purchase a new car, or redecorate your home, here is how to do your budget planning for big purchases.
How to Plan Your Budget for Big Purchases
When you need to make a big purchase it is important to follow a few simple steps so that you can afford it without going into debt or becoming broke.
1. Know exactly what you need to buy.
It goes without saying that after you realize you need or want something new, it’s mandatory that you do your research to find out exactly what you want to buy. That means you will have to take into account what is of utter importance so you don’t create expectations that you cannot meet. You might also need to choose between things and/or brands. Maybe you want to buy a new car and also redecorate your home. Chances are if you haven’t attained your financial freedom yet, that you won’t be able to do them both at the same time without suffering. So you’ll need to prioritize which of the two is most needed in the near future and start budgeting according to the choice you made.
2. Get the exact cost of the purchase/s.
After deciding which big purchases you intend to make, then the next step is to find out how much it is going to cost you. It would be best to avoid purchasing anything in a rush, without considering all the options available and having a good plan in mind. That being said it’s time to note down the prices of the things you need and all their characteristics. If you want to buy a new car you’ll need to research more brands and dealers and find out which is the best option for your needs and which one is the most cost-effective. You don’t have to choose the cheapest option, but rather choose the most well-balanced option in terms of benefits and cost-efficiency.
3. Decide how much money you need.
When doing your budget you’ll need to do everything in accordance with how much money you will need for your big purchase. When you make money, a part of it will have to be put aside for what you intend to buy. And that is without going into your retirement savings or your emergency account. Make a realistic budget plan so that the money you save for the purchases will not leave a big hole in your pocket or badly influence your lifestyle. So try to not give up on your gym subscription or the essentials for a healthy life.
4. Open a savings account for big purchases.
Yes, you will need to open a separate savings account dedicated only to big purchases. For smart financial planning, it’s important to keep your savings accounts separate so you keep everything in order and don’t overspend the money dedicated for things that are not urgent. Just like you don’t go into your emergency fund to buy groceries when you have enough money especially for that, you can’t go into your savings account for big purchases for other expenses. Always remember to put the money you set aside for big purchases into this account as soon as you have it. This way you will keep track of your budget, avoiding mistakes.
Things to Avoid When Budget Planning for Big Purchases
Once you have your budget plan in order, it doesn’t necessarily mean everything will go smoothly from now on. To make the most of your budget for big purchases here are some mistakes you should avoid making.
Don’t spend the money you don’t have.
It might sound redundant at first, but hear me out. Unless your life depends on the big purchase you want to make, don’t go into debt in order to have it. That also means you should not rely on your credit card for daily expenses while saving your income for the big purchase. In the end, you will have to pay what you owe, instead of spending your money wisely.
Don’t leave a hole in your budget for the best financial planning.
If you avoided what we talked about above, you should also keep in mind that budget planning should help you, not make you miserable. So don’t put aside the money that you would normally use on your living expenses. Plan your budget in such a way that you can still afford to live a decent healthy life, without burning a hole in your pocket. You might end up with a car in the near future, but you don’t want to go broke while saving for it.
When planning your budget for big purchases, don’t spend the extra money.
Don’t rush to spend your monthly bonus or your employer benefits. Put some of it aside in your savings account for big purchases so you can attain your goal faster and save more money. Here you can also include the money you receive as gifts.