How To Plan for Large Purchases

Making a large purchase should be exciting, not intimidating. There are a host of strategies you can take to make it simple and stress-free to plan for a sizable purchase, whether it’s the couch of your dreams or a car for your teen driver. At Hawaii Partners 3D Wealth Advisors, we know how to make big purchases wisely, so you can plan, protect your money, and indulge in some of life’s most cherished experiences. Read on for our guide to planning for a large purchase.

Create a Savings Calendar

Saving Planby cafecreditis licensed with CC BY 2.0

Planning for a large purchase might take time, and building a timeline can help you meet your goals. If your purchase is time-sensitive, like college tuition for a child, the deadline may be non-negotiable. However, many other purchases, like a trip, home renovation, or new property, could be flexible, allowing you to set a realistic date by which you can save the amount you need.

Once you know when you hope to make the purchase, you can create a savings calendar. Breaking down your goal into smaller increments may help you manage your money more effectively and contribute small amounts regularly. For example, if you’re saving for an international vacation, you might aim to have $1,000 saved in three months, $3,500 in six months, and $5,000 in eight months. You can then break these amounts down even further to determine how much you should put away out of each paycheck.

Make a Separate Savings Account

Unexpected expenses can appear randomly, and it’s important that you organize your money effectively so you don’t end up straying from your plans. Creating a unique fund for your upcoming purchase could help you avoid the temptation to take money out of it to allocate elsewhere. Keep it separate from your emergency fund, which should include several thousand dollars to cover unforeseen bills like home repairs or medical expenses.

It may even be beneficial to make it difficult to transfer money out of the account. For example, you could consider keeping it in a different bank than your primary checking account so you can’t send money directly to your debit card with a click of a button. Some people use the “envelope method,” which encourages you to put cash in an envelope and lock it away in a secure location. You can label the envelope with the name of your purchase, like “wedding” or “new car,” or even decorate it with a photo to keep you motivated.

Take Advantage of Investments and High-Yield Savings Accounts

While putting money away little by little might help you inch closer to your goal, you can get there even faster by saving your money somewhere that gives it the opportunity to grow. Consider using a high-yield savings account to maximize your savings. High-yield savings accounts typically have much higher interest rates than standard savings accounts, but it’s important to note these rates are subject to fluctuation.

Alternately, you could choose to invest the money to help it go even further. Investing might be especially beneficial if you have years to save, like for a home or college fund. Aim for stable investments, like Treasury Inflation-Protected Securities (TIPS), to protect your money from economic changes.

Diversify Your Income Sources

If you want to make your purchase sooner rather than later without dipping into other categories of your budget, consider exploring new ways to make money. This could be a relatively low-commitment activity, like selling clothes and housewares you don’t use anymore online to contribute extra money to your purchase fund, or an ongoing new income source like a side business. Taking advantage of simple ways to bring in more money may help you accommodate a large purchase without adjusting your current budget too much.

Consider Your Payment Method

When it comes time to pay for your upcoming purchase, you likely have many options for payment. Some payment methods may offer long-term benefits, so it’s beneficial to reflect on your options to choose the best method for you. For example, if your purchase is within your credit limit and the retailer accepts credit cards, you may be able to reap the benefits of your rewards program. However, if you charge the item on a credit card, ensure you have a plan for paying it off quickly to avoid interest.

Many people finance large purchases, like homes, vehicles, and furniture items, which allows you to make smaller payments over time. If you’re interested in financing your purchase, research your options ahead of time and discuss interest rates with lenders to find the best deal. You may even be able to use home equity or a margin loan from non-retirement investments to fund your purchase. Our advisors at Hawaii Partners 3D Wealth Advisorscan help you review your options and learn how to take advantage of your existing investments while funding your next one.

Automate Your Savings

Most banks allow you to set up recurring automatic transfers between accounts. Consider creating a weekly, bi-weekly, or monthly transfer for your savings goal so you don’t have to think about setting aside money. Return to your savings calendar to determine how much you should transfer and at what interval. You might choose to transfer money on paydays, at the end of each week, or at the end of the month after you’ve paid all your bills.

Automatic payments are a great way to implement the “pay yourself first” method, which promotes setting aside savings at the beginning of each pay period instead of saving whatever amount is left over after your expenses. Automated transfers ensure that you meet your incremental savings goals on the way to your important purchase. Plus, you can relax and spend more freely from your checking account knowing you’ve already put aside your contribution to your purchase fund.

At Hawaii Partners 3D Wealth Advisors, we help individuals and families in Hawaii plan effectively for large purchases so you can live the lifestyle you dream of without stressing over how to pay for it. Our team of knowledgeable advisors can help you utilize savings accounts and investments so you can grow your wealth even while spending. To learn more about how we can help you prepare for your next major purchase, contact 3D Partners Wealth Advisors in Honolulu today.