5 Ways to Save for Big-Ticket ItemsBy Randell Tiongson on March 21st, 2016
Buying a car and owning a home – these are part of the Filipino dream; however, saving up for big-ticket expenses, such as a vehicle or a house, may seem like they will take forever. A fresh graduate earning an entry-level salary may not even be able to afford the monthly amortization for these items. A person in his thirties and forties may afford the monthly payments on a car or house loan, but paying such a large amount may be discouraging because it’s still taken out of one’s income. However, owning a car or a home is certainly possible whatever your age is. The key is building the habit – the habit to save, the habit to pay debt regularly, and the habit to stick to one’s goals.
Here are 5 easy ways to save for big-ticket items, so soon enough, owning a car or a house is your reality:
- List down your income and expenses
‘What can’t be measured can’t be improved.’ – It’s an age-old adage.
When it comes to finances, the bottom line is you have to know how much of your money is going in and going out in order to come up with realistic plan for your finances – such as buying a big-ticket item. If you don’t know how much money you’re left in a month after spending, it’ll be very difficult to come up with a payment plan that is realistic and fits your current situation.
What to do:
- Track both your income and expenses.
- Categorize your expenses (e.g. rent, utilities, entertainment, etc.).
- Set a budget according to category.
- Money going out (outflow) should never exceed money going in (inflow).
- In the next month, cut down spending on categories where you overspent.
- Sacrifice today for tomorrow
Nothing great ever comes easily, and your personal finances are no exception. If you want to live in your own home in the future or drive your own car to avoid the horrendous Metro Manila commute, you need to make a few sacrifices today for a better tomorrow.
What to do:
- Forego short-term gains for long-term ones. (e.g. don’t buy a new shirt every month and save the money instead)
- List down your long-term goals in your phone or a place where you’ll see it every day to keep your eyes on the prize.
- To control impulse spending, compare your hourly income to an item’s cost per hour, and then determine if the item’s really worth it. (e.g. if you want to buy a shirt worth Php 800, and you earn Php 200 an hour, it takes 4 hours of working to afford that)
- Save as you would pay a loan
When it comes to paying a loan or your credit card balance, the pressure is on. You’re more determined to tackle your credit card debt or loan balance with the monthly statements you receive. Worse, your balance seems to increase every month in which you don’t pay the full balance because of interest. When saving for a future expense, you’re not as pressured. You don’t have any liabilities (e.g. interest fees, defaulting, collateral) because you haven’t bought a car or a home yet. However, to build the habit of saving for big-ticket items, save for them as diligently as you would pay down a loan.
What to do:
- Know the exact amount you need for your future purchase.
- Create a savings plan (should include how much you should save every month, your timeline for saving among many others, etc.)
- Transfer a percentage of your monthly income from your payroll to your savings accounts during payday. As what Warren Buffett says, “Do not save what is left after spending, but spend what is left after saving.”
Investing allows you to save money at a faster rate because the possible return on investment (ROI) beats the interest you earn in your savings account. However, it’s best to know that high reward equals high risk, and investments are not guaranteed. Since you stand to earn more by investing, you stand to lose a lot as well. That shouldn’t scare you away. If you’re diligent to learn and practice, you’ll become a better investor.
What to do:
- Read investment-related resources and attend seminars or conferences. This way, before you even open an investment account, you already have an idea of what to expect.
- Know your purpose or goal for investing. Are you saving for a home in the next five years or for retirement thirty years from now? Knowing you goal allows you to pick the investment most suitable to your situation and preferences.
- Don’t be a one-time investor. Once you open an investment account, put a portion of your monthly income into your investments. This way, you’ll ramp up your savings.
- Increase your revenue sources
There’s no magic trick when it comes to saving more, and there is definitely no substitute for hard work. If you want to save for a big-ticket item in less time, increase your sources of revenue, be it investing or taking a second job. By increasing your monthly income, you’ll be able to put more into savings.
What to do:
- Investing is one way to increase your revenue sources.
- Know your strengths and take up freelance gigs aligned with your strengths. People will pay you for what you are good at and for what they aren’t.
- Save ALL your income from your sidelines. Do not use the money to spend for expenses; otherwise, it beats the purpose of earning more to save more.
Living the Dream
The five steps above will bring you closer to your dream of owning a big-ticket item. Whether this is buying a car or owning a house (or another purchase), you’ll reach your financial goals as long as you build and keep the habit of saving.
Once you reach that point and buy that big-ticket item, it’s best to keep these safe. One way is to keep your discipline of saving since unexpected expenses will arise (home repairs and car maintenance fees). The need to save never really end. Another way is to protect yourself through insurance, be it car or home insurance. Insurance premiums may take a chunk of your income, but you’ll end up paying less for your insurance policy (in the event that you need to make a claim) versus than if you didn’t have insurance at all. To get the most affordable deal on non-life insurance policies, comparison portals such as MoneyMax.ph, allow you to compare different types of insurance from various providers.
You never really stop spending, but this is the importance of building the habit of saving. You never really stop needing to save even after you’ve bought that big-ticket item. Whether it’s paying down debt or saving for a big-ticket item, the key takeaway is building the habit of keeping and growing your personal finances.
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