Saving up for a big purchase? (2024)

Ready to make a major life purchase in the near future? Paying for a house, a car, wedding or college tuition can be overwhelming, but there are ways to carve out enough savings without putting the rest of your life on hold.

No matter what you’re saving for, there are a few general best practices to follow:

Set your timeline and monthly savings goals

A good first step is to calculate how much you’ll need to save, and for how long, to meet your goals. Want to make an $8,000 purchase in two years? If you save $333.34 a month over 24 months, you’ll reach your goal.

Breaking down large purchases into more manageable chunks can ease your financial burden by helping ensure you don’t have to set aside a large sum of money at once. Setting a specific goal also has psychological benefits: Those who clearly define and describe their goals are more likely to achieve them.

It's also a good practice to create a spending plan to help determine how much you can save while having enough left over for necessities. In general, we recommend creating a detailed budget, but if you are more likely to make and stick to one with broad categories try that instead. Mapping out your monthly budget can help you see where you’re spending unnecessarily each month so you can allocate that money to your big purchase instead.

Once you have a monthly figure to shoot for, you can use it to inform the rest of your savings strategy.

Automate your savings

A surefire way to help stay on track with your monthly savings goals is to set up an automatic funds transfer from your checking account to your savings account every month. You’ll never forget to save, and it can help keep you from dipping into that savings throughout the month with small purchases here and there.

If your company pays you through direct deposit, you could also set up a system in which a small sum of money is deducted from your paycheck and put into your savings or investment account instead of your checking account.

If you’re zeroing in on one major purchase, it can be a good idea to open a new savings or investment account dedicated to that purchase. That way, you’ll easily see exactly how much you have set aside for it.

Invest your money

If you have several years to save for a big purchase, then you have time to invest your money so that your savings can grow. Consider investing your savings in a manner that is consistent with your risk tolerance and time horizon. Your financial advisor can help you invest these funds in a way that can help you achieve your goal. And if you’re on a shorter timeline, open an Edward Jones Flex Funds® account, which can help you track progress toward your short-term goals.

By investing in a portfolio that is consistent with your time horizon and risk tolerance, you gain the potential to earn a return on your funds while maintaining an appropriate amount of risk for your goal.

Consider micro savings

What if you don’t have a lot of money left to put aside after essential expenses? Micro saving is a strategy that focuses on putting away small sums of money here and there so you don’t need to change your habits drastically. Many banks offer a service that rounds up your transaction price to the next dollar and automatically puts the additional amount into a savings account. For example, you can have the service automatically save a little extra money whenever you buy a cup of coffee.

On top of these best practices, some specific strategies may work better for certain purchases. Here are a few tips for saving for three major life purchases:

1. Saving for a house

Seek loan assistance: Some people think they need a 20% down payment to buy a home, but you may be able to get a conventional mortgage loan with as little as 3% down. However, it's important to weigh the benefits of a smaller down payment with its costs. Smaller down payments mean higher monthly mortgage payments and may require additional expenditures such as private mortgage insurance or higher interest rates.

2. Saving for a car

Sell or trade your current car: Trading in your car is an effective way to help fund your next car purchase and lower the overall amount you’ll owe on your new vehicle. You can get a sense of your car’s trade-in value with pricing guides such as Kelley Blue Book and Edmunds.

3. Saving for college

Consider a 529 plan: These are state-sponsored education savings plans that can be used for higher education expenses. 529 plans are tax-advantaged, and the money you put into them goes into investments, such as mutual funds and exchange-traded funds, so that your money has the potential to grow over time. Investments in a 529 plan will fluctuate and may be worth more or less than the original investment when redeemed.

How Edward Jones can help

Talk to your financial advisor about other steps you can take to prepare for big purchases.

Saving up for a big purchase? (2024)

FAQs

How much should I save for a big purchase? ›

Set your timeline and monthly savings goals

A good first step is to calculate how much you'll need to save, and for how long, to meet your goals. Want to make an $8,000 purchase in two years? If you save $333.34 a month over 24 months, you'll reach your goal.

How can I save money for a major purchase? ›

Saving for a large purchase
  1. Determine how much money you'll need.
  2. Set a savings timeline.
  3. Create a schedule that matches your cash flow.
  4. Establish a separate savings account.

What is the purpose of saving up for a large purchase? ›

Saving up and paying cash may make it possible to negotiate a better price, or at least better financing terms. Use of credit may make more sense for a larger purchase, especially if it's something that appreciates in value, like a home—or if it means you avoid having to withdraw from a savings or investment account.

What is the best way to pay for a large purchase? ›

Using a credit card for large purchases could be a good option if you can still make your payments on time and in full. Otherwise, you might face compounding interest charges and a hit to your credit. There may be other ways to pay for big-ticket items or bills, like creating a savings account or taking out a loan.

Is $20,000 saved good? ›

Having $20,000 in a savings account is a good starting point if you want to create a sizable emergency fund. When the occasional rainy day comes along, you'll be financially prepared for it. Of course, $20,000 may only go so far if you find yourself in an extreme situation.

Is it good to have 20K saved up? ›

While $20K may not let you quit your job, it's enough to start building financial security, whether you max out your retirement accounts, invest in fine art, or divide your cash between multiple investments.

Should I call my bank before making a big purchase? ›

Should I call my credit card issuer before making a large purchase? To protect against fraud, issuers may flag a transaction as suspicious if it's unusually large for the cardholder, especially if it's in a ZIP code where charges haven't come from before.

Should I use my credit card for a big purchase? ›

Using a credit card for large purchases can help you qualify for sign-up bonuses (also known as new cardmember bonuses) and give you more time to pay for items, but it also has the potential to impact your credit score.

How much do I need to save a month to get $10,000? ›

To reach $10,000 in one year, you'll need to save $833.33 each month. To break it down even further, you'll need to save $192.31 each week or $27.40 every day. These smaller chunks are much more realistic and simple to comprehend, making it easier to track your progress.

Is it better to use savings or get a loan? ›

Spending your savings is usually best since it's better to spend against the interest earnings you'd make from your savings than to pay out interest to a financial institution. Using your savings saves you from being indebted to anyone and can decrease the cost of goods and services you pay for.

What is a consequence of not saving up for a large purchase? ›

Not saving up for a large purchase can result in having to rely on credit cards or loans, which can lead to debt and interest payments. It may also delay or prevent you from making the purchase altogether, causing frustration and missed opportunities.

Should I save my money or buy something? ›

Saving is generally seen as preferable for investors with short-term financial goals, a low risk tolerance, or those in need of an emergency fund. Investing may be the best option for people who already have a rainy-day fund and are focused on longer-term financial goals or those who have a higher risk tolerance.

Do big purchases hurt credit score? ›

Using a large portion of your credit limit—or having a high utilization ratio—can hurt your scores, while using a small portion is best for your scores. For this reason, using your credit card to make a large purchase could hurt your credit if it increases your credit utilization ratio.

How to justify a big purchase? ›

If you're thinking of making a big purchase, ask yourself some important questions first.
  1. Do I really need this item? ...
  2. Can I afford this item? ...
  3. Do I need to buy this item right now? ...
  4. Will this fit into my monthly budget? ...
  5. Have I done enough research to justify buying the item? ...
  6. What are the pros and cons of buying this item?
Sep 14, 2023

Which is not a key to saving money? ›

To have a negative savings rate means spending more money than you make and acquiring debt. The key to saving money is to: focus, make saving a habit and a priority, and discipline. Your income is not a key to saving money.

What is considered a large purchase? ›

A big purchase is anything that could affect your debt-to-income ratio. The question would be, 'does a purchase materially affect your situation in some way? ' 'Does it increase your debt level or reduce your cash reserves?

Is 1500 a good amount to save? ›

Saving $1,500 per month may be a good amount if it's feasible. In general, save as much as you can to reach your goals, whether that's $50 or $1,500. You could speak with a certified financial planner to help develop a plan for your finances if you aren't sure how much money to save regularly.

What is the 20% rule to save money? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

What is a realistic amount to save? ›

Here's a final rule of thumb you can consider: at least 20% of your income should go towards savings. More is fine; less may mean saving longer.

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