Paying cash for major purchases is a hallmark of good finance management. It takes equal parts planning and discipline but if you establish a system that works for you, you can sleep easy knowing that your next vacation or car will be paid for without going into debt.
Just Do It
We use this technique a lot! You can see from my budget post a few months ago that we’ve got a top-level category for “goals”. Or, what I like to call “future spending”.
We set up goals for all of the following things and more:
- My wife’s engagement ring
- Our Wedding
- A down payment for our first house
- Our last car
- Christmas for the 3 years (and the next two!)
- Several big vacation and dive trips
You can use any ol’ savings account to set up a goal but our favorite, by far, is SmartyPig.
In case you haven’t heard of it, SmartyPig is a savings account but it was specifically designed to help you save up for goals. You tell is what you are saving for, when you need the money, and how much you want to save. SmartyPig will figure out how much you need to save per month, including the interest, to meet your goal.
The best part about SmartyPig is that the savings are automatic. There’s no forgetting, no tracking. You tell it when to take the money and it will do all the work.
Even if you don’t have any big purchases coming up, you probably have something you can save for. Just about everyone is going to have some seasonal spending and for my family, it’s grouped into two time frames: Christmas and the Summer Birthday Extravaganza.
I’m sure you all know what Christmas is so I’ll focus on the other one: in my wife’s family, literally everyone was born in the summer and so rather then having 20 birthday parties, they condense them all down into one, mega, gift-giving exchange. Since we know how many people there are and about how much we’d like to spend, we can set up a goal for it.
We expect to spend about $600. If we didn’t save for it, this would likely come out of the budget in May, which would force us to come up with the money somehow. For those with tight budgets, this means it would probably come from a credit card.
But over the course of a year, $600 is $50 a month without any interest and that’s pretty manageable. In fact, we’re actually saving for Christmas 2013 and given the long time period, the transfers are almost nothing.
It may seem silly to save for a holiday two years in advance but the fact is, we’re going to spend that money anyway so I’d rather pay for it over time – painlessly – then try to scramble for the money when I really need it.
Europe: Here We Come
Today we’re leaving to go to Europe for two weeks and the whole trip is paid for thanks to a trickle of savings over the last three years.
It feels really good to be able to plan a big trip like this and know that, while our budget isn’t unlimited, we won’t have to worry about where it’s coming from: it’s already there.
How about y’all? Do you have a saving system for “the big stuff” in life?