How To Budget For Large Expenses
Having a family comes with its demands on your finances. In 2017, the cost of raising a child until age 17 was pegged at $233,610 and home prices had increased by 6.5 percent. From paying for childcare and school fees to mortgages and health care premiums, Americans are spending more and saving less with households saving an average of 3.8 percent of their disposable income in 2017. With these financial obligations, making large purchases such as a new car, kitchen appliance or finally doing that kitchen or home renovation can become a complicated process as you balance your family’s budget against your new purchase. So can you manage those large purchases while still remaining abreast with your finances? Check out these tips that can help you do just that.
Do your research
A part of your research when making large purchases includes a comparison of costs between suppliers and looking at the various financing options available to you. One choice would be to use savings but larger purchases are also commonly financed using personal credit options including credit cards and personal loans. When putting together funds for large purchases, be sure to look at the cost of financing attached and go for cards offering promotional 0 percent interest charges which gives you a break from interest charges for the specified period. Some credit cards now offer the Pay It Plan It feature allowing consumers to pay down large purchases using an installment plan, interest-free. Comparison websites online can help you narrow your choices of both credit cards and personal fixed interest borrowing options available today and more importantly, help you understand the terms of each.
Failure to plan is planning to fail
Once you are able to estimate your costs and define your goals (time of purchase and method of finance), it is time to plan your route to purchase. If you have chosen to go the savings route, drawing up a budget of household expenses is a great first step to narrow down any areas where you can cut costs and increase savings. The same also applies in the event of you choosing credit financing, so that you can be sure of affording your repayments monthly.
Make it a habit
There are grocery expenses, child expenses, and those all too familiar impulse purchases. However, by counting your repayment or saving each month as a bill and fitting it into your monthly budget, you can ensure that you are working towards your goal each month. One way to do this is to open up a separate savings account dedicated to your purchase and set up an automatic payment each month. The monthly amount would be derived from your budgeting process, once you have figured out the amount you can save each month.
You can also choose to save cash and use a dedicated cash envelope instead. It is often said it takes 21 days to form a new habit, modeled after Dr. Maxwell Maltz’s work. To help you stay on track to achieving your goal, utilize reminder and motivation tools such as tracking apps on your phone and automatic reminders each month around payday. Before you know it, saving for your purchase will become second nature and you are well on your way to achieving your goals.
Always have a backup plan
As always, it is a prudent thing to have a backup plan should your purchase not go the way it is expected. In this case, this can mean exploring alternative income sources should your household budget experience any unexpected increases. With kids in the picture, financial planning is not always an exact science. You can always look at other ways of paying for your item and keep in mind the finance costs attached. One example is most furniture stores offer layaway plans that allow you to spread your repayments over a set period.
In the event you cannot meet your savings goals and urgently need the item (for example, a car), then you do have other options. The same principle applies to income sources should you want to speed up the saving process and make your purchase earlier. Side businesses such as selling unused items on eBay, survey taking or pet and house sitting are all some simple great ideas for additional income. So whether it is taking a hard look at your budget or being creative to cut expenses, or simply bumping up your income you can find a suitable way of making those large purchases that is ideal to you and your family life.