Planning for Major Purchases: Finding the Dollars

Big expenses come up fairly consistently throughout a lifetime. It could be the need for a new home appliance or major car repair, or an unexpected medical bill or personal emergency. No matter the source, a major expense can put a wrench in an otherwise well-thought-out financial game plan. When savings isn’t enough to cover a hefty purchase that’s needed in a hurry, don’t fret. There are ways to find the dollars. Here are a few tips to save for an unexpected or major bill in advance, along with advice on financing the need without breaking the bank.

Get Up Close and Personal with Your Budget

The smartest step anyone can take in avoiding the financial turmoil of an unexpected bill or major purchase is to plan ahead. This is easier said than done, but there are a few strategies to follow to get the job done. First, get to know your ins and outs, financially speaking. An in-depth budget review, either on your own or with the help of an advisor or digital platform, can make all the difference in getting through a large purchase without undoing your financial goal progression.

When reviewing your budget, be sure to note all sources of income, and be realistic as to what you spend each month (or week) on the non-essentials. The latter may include dining out, entertainment, or the occasional coffee from the shop close to the office. Once you’ve added up these expenses, subtract them from what’s earned each month, and you will quickly discover if you have a surplus or a deficit.

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Should you have extra funds in your budget, use all or a portion to set aside for major purchases in the future, even if you don’t know what those are yet. If a deficit is showing in your budget, you have more work to do. Go through each line item of expenses and see what can be cut back or cut out completely. Here are a few go-to places where you can find some extra dollars for saving toward major purchases each month:

  • Cable: Do you need it? Has it been reviewed with the provider in the last year? Are there discounts you are eligible for? Can you switch to a lower-cost provider, or cancel it completely?
  • Cell Phone: Are you using all the features you pay for? Are there discounts to be had? Is a switch more cost-effective in the long-run?
  • Car/Home/Renter’s Insurance: Has it been reviewed for discounts or repricing in the last year? Does a switch off savings you could put elsewhere?
  • Credit cards and debt: Are you able to save on interest by consolidating? Does a fixed loan ease the monthly payment requirement to give more wiggle room in your cash flow?
  • Subscriptions: Are there subscriptions you are paying for that you aren’t using? Is there a cheaper alternative?

Be Smart About Financing

When finding the dollars isn’t an option either because you’ve already stripped down your expenses or because the major expense is already in play, consider your options for financing. Balance transfer cards or new credit cards with a promotional interest rate can be beneficial for financing with little to no interest. This gives you time to repay the expense over several months. Similarly, taking out a personal loan is an option, even if credit is an issue in some cases. Personal loans offer fixed payments for several months to a few years, making it easier to budget over time. Homeowners may also be able to use a home equity line of credit or loan if they have available equity in their property. Each of these may be a viable source of financing when saving in advance isn’t an option.

Use a Combo Strategy

In most cases, using a combination of the strategies above is helpful when major purchases or unexpected bills rear their head. Evaluate what you can safely take from savings and your available financing options, and use both to take care of the expense. This leaves you with less of an upfront burden, and may help lower the amount paid for taking on debt to cover the purchase.

Posted on February 12, 2018 by in Personal Finance

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