Major purchases are unavoidable. However, coming up with the cash can be difficult without ending up with a lot of personal credit card debt. Learn how you can save for major expenses to fit into your life and budget.
Learning to Budget for Major Purchases
Don’t let major purchases damage your budget and your finances. By getting ahead of the curve, you can avoid a big financial disaster.
Anticipating Big Expenses
The first thing you need to do is anticipate future expenses that could potentially cost hundreds or thousands of dollars. Let’s focus on home and vehicle costs which can easily cause lots of credit card debt.
If you own a car, check out your owner’s manual to see when the recommended maintenance and replacements take place. A timing belt, for example, is a major expense that you can save for. Based on the car’s mileage, you will have an idea of when it needs to be replaced instead of waiting for the belt to break and potentially destroy the engine.
Similarly, homeowners should think about home improvements, repairs and the maintenance of the property. Roofs and HVAC systems of a house need repairs and replacing every so often. Septic systems, tree removal and driveway resealing are a few other examples of costs to watch out for. New homeowners should be very cautious since you might not be as aware of all the costs coming your way courtesy of your new abode.
In general, routine maintenance of your home and vehicles can save you money in the long run by keeping things in working order.
Keep a Separate Emergency Fund
In addition to putting money aside for larger anticipated expenses, it’s also wise to keep a separate emergency fund for when life throws a curve ball your way. This way, your plans for spending on maintenance, repairs, or replacements won’t be derailed by an unexpected expense that requires immediate attention.
Most experts recommend keeping 3-6 month’s worth of monthly expenses put aside for emergencies that can range from a major medical event to getting laid off from your job. It’s not pleasant to think about, but being financially prepared can take the sting out of these types of events.
How to Start Saving
Now that you have gone through some of the bigger expense areas in your life, it’s time to start saving for those major purchases.
If you aren’t sure about how much any of these expenses will cost, do some research online to get an idea. You could also ask friends or get a professional quote. Many times getting a quote won’t cost any money and you can vet a contractor in the process.
Saving for major purchases can look differently from budget to budget. One way to save is by having a standing line item in the budget for home and auto repairs. Set aside a monthly amount and use it when needed. Look at your budget to determine the amount you can earmark for major purchases.
Getting Out of Debt from a Major Purchase
If you have already overspent on a major purchase, there are a few ways to recover. Let’s go over some options to help you create a get out of debt plan.
Create Your Own Get Out of Debt Plan
If you feel confident, create your own plan to recover from your overspending. First, you will need to find where you might have extra cash to redirect to your debt reduction efforts. Clothing, entertainment and dining out are easy options to look at.
You might also want to consider putting less in savings for the time being until the debt is taken care of. Make this your top priority in case you run into any more trouble.
A Debt Management Plan
If you find yourself under too much water, consider reaching out for help. A debt management plan or debt management program (DMP) is a service offered by credit counseling agencies. The goal of a DMP is to help you get out of debt quickly, without going through bankruptcy or debt settlement, both of which can hurt your credit score. Consumers may complete a free counseling session with a debt counselor to determine the best options for debt repayment.
Steady saving along the way can help avoid debt from major purchases. You might want to use the funds for other things, but keeping the money set aside for your home and vehicles is the best strategy.
If you’re struggling to pay off debt, ACCC can help. Sign up for a free credit counseling session with us today!