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How to Save for a Big Purchase

4 min read

Summary: A big purchase feels easier when you give it a plan: a clear goal, a small regular amount set aside, and a look at what borrowing would really cost.

Start with a goal you can see

Name what you are saving for and what it costs. "A new laptop" is vague. "A laptop that costs 900" is something you can plan around. Write the price down, and write down the date you would like to buy it.

Then check the date against your budget. If the monthly amount feels too big, move the date later. A slower plan you can keep is better than a fast plan you drop.

Decide how much to set aside

Look at your budget and find an amount you can put aside each pay day. The US Consumer Financial Protection Bureau (CFPB) suggests deciding how much to set aside for special occasions, so you can enjoy life without overspending. A big purchase works the same way: it is a planned cost, not a surprise.

Small amounts count. If you track your spending first, you may find money you did not know you had. Our guide on tracking spending for a month shows how.

Keep the money in its own place

Many people find it easier when the money is kept apart from everyday spending. If your bank offers a separate savings space or a way to move money on a set day, that may help. Check what your own bank offers, and check for fees.

Look at your progress now and then. The CFPB suggests comparing your actual numbers to your plan and changing the plan if it is regularly out of line.

Compare saving with borrowing

Sometimes you cannot wait. If you are thinking about a loan or credit, look at the full cost first. Your Europe, the EU's official guide for citizens, gives these points for consumer credit in the EU:

• It is best to compare offers before you decide.
• The credit provider must give you a standard information form. It lists the main features of the contract, the amount and cost of the credit, and your payments.
• The APR is one figure that shows the total cost of the credit, including interest, commission, taxes and other fees.
• You have 14 calendar days to withdraw from a credit agreement after signing. You do not need to give a reason, but you must repay what you borrowed, plus interest and any non-refundable charges already paid by the provider.
• If you repay early, the lender may ask for compensation, but it must not be more than the interest it actually loses.

These rules are for the EU and cover credit between 200 and 75,000 euro, with some exceptions. If you live in the UK, the US or another country, the rules may be different, so look for your own consumer body.

The simple lesson: borrowing adds a cost to the price. Saving first can avoid that cost, but only you can decide what suits your situation.

Steps

1. Write down the item, its price and your target date.
2. Divide the price by the number of pay days until that date.
3. Check that the amount fits your budget. If not, move the date.
4. Put the amount aside on pay day, in its own place.
5. Check your progress each month and adjust.
6. If you consider credit, compare offers and look at the APR.

An example

This is an example with made-up amounts.

Sam wants a washing machine that costs 600. Sam gets paid monthly and wants to buy it in ten months. 600 divided by 10 is 60 a month. Sam looks at the budget and sees that 60 fits. After three months Sam has 180 saved. Then a bill goes up, and Sam can only manage 40 for two months. Sam moves the date back a little, and the plan still works.

Now suppose a store offers to let Sam pay for the machine by credit. Sam asks for the information form, reads the APR and compares it with another offer. Sam then decides whether waiting is worth it.

Be honest about limits

Prices change, and life brings other costs. A plan is a guide, not a promise. If you need to pause, pause, and start again when you can.