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How To Save Money for a Big Purchase

Ravi Rajan is a program director working in India. He writes articles on finance and money management techniques.

It can be overwhelming to think about the amount of money you’ll need for a big expense, like paying for a wedding or making a down payment on your first home.This article gives you some ideas to go about it

It can be overwhelming to think about the amount of money you’ll need for a big expense, like paying for a wedding or making a down payment on your first home.This article gives you some ideas to go about it

The Oracle of Omaha

He is known as the Oracle of Omaha. He had been the richest person on the planet and is currently the sixth richest person in the world.

That he is famously known as the world’s best investor is not a big deal. But he did not build his wealth solely based on his investing talent. This guy is as thrifty as your grandma haggling with your local vegetable vendor every single morning. He is Warren Buffett and some examples of his thriftiness can be seen below.

  • Lives in the same house that he bought in 1958
  • Turned a dresser drawer into a crib for his firstborn child
  • Drove a Volkswagen for the longest time until his wife replaced his car for him
  • Never spend more than $3.17 for breakfast

And in an interview with Yahoo Finance's editor-in-chief, Andy Serwer, Warren Buffett stressed the need for saving as he said,

"I think it's a very good habit to develop early. I think the habits you develop are terribly important. They may be more important than IQ or something. I got a nickel-a-week allowance when I started. I didn't save anything out of that nickel, but I did do a lot of jobs. I started saving very early. I started saving those cokes that I bought six for a quarter…I did all kinds of things to save money, that's how I got my $114 together by the time I was 11. I enjoyed saving. I enjoyed investing. I wanted to have something to invest in. I kept reading about these guys in the public library and I wanted to be in the game myself."

Saving for Something Big Can Be Overwhelming

Saving for Something Big Can Be Overwhelming

Saving for Something Big Can Be Overwhelming

It can be overwhelming to think about the amount of money you’ll need for a big expense, like paying for a wedding or making a down payment on your first home. The idea seems impossible when you are at a stage when you are living paycheck to paycheck. For example, if you are planning to get married in the next year and you need to save 10,000$ for it, that comes to saving at least 800$ per month which is a lot of money.

But take heart!! It is pretty much doable. You just need to plan for it and take one step at a time and it also requires spending more (or, uh, at least a little) time looking over your bank statements. The #1 thing you need to do first is to be clear about what you want, print a picture of it, and post it in front of your eyes. So, whenever you see the picture, you are egged up with the motivation to save for your dream.

And once you are motivated enough, you need to plan for the purchase.Here are some saving lessons we can learn from Warren Buffett,

1. Set a goal.
2. Make it a weekly challenge.
3. Make saving automatic.
4. Don’t be a brand loyalist.

1. Set a Goal

Saving always starts with setting a goal and making a plan to implement it. Don't have a goal to save money; that will never work. Instead, have a goal to achieve something tangible so that you have a clear focused path on how to get there.

For example, you can set a goal for retiring early, going on your first solo world trip, or saving up for a down payment on a house, your child's college fund, or any number of things. You can set as many big financial goals as you want, but honing in on one at a time will help you get focused.

For example, coming back to my marriage example, to make this goal happen and to know exactly how to save money to get there, here are the steps that you’ll need to take.

  • State your goal- I want to get married and I need 10,000 $ for it.
  • Set the deadlineI want to get married in the next year.
  • Break the goal into smaller piecesI need to save at least 800$/month.
  • Work out various ways to save money ( say,800$/month)

For example, here is my breakup to save 800$/month:

  • $250 by cutting down eating out expenses
  • $300 by taking local transport to work instead of a car
  • $50 by cutting down on excess coffee
  • $50 by taking a less expensive phone plan
  • $100 by cutting down on grocery stores and gourmet foods.
  • $50 by cutting cable expenses.

So, you can see, it isn't too difficult once you consciously start applying your mind towards curbing the expenses. The heart of any saving plan is the budget. Budgeting helps you prioritize your expenditure and achieve an optimum balance between spending and saving.

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When working out your money priorities, think about which items you need for your basic living expenses and which are extras or things you could maybe do away with without any impact.

Learning how to save money for big things is also a step toward changing your habits and mindset, making sacrifices, and doing it with a laser-sharp focus on achieving your goal. I won't lie, it can be hard, but I promise, you will thank yourself for it in the future.

2. Make It a Weekly Challenge

A lot of people struggle or shrug away from saving money in small amounts because they think it is not a big deal. After all, you can't build a palace by saving 5$/day. This mindset needs to be changed.

Learning how to save money on a daily or weekly basis is often breaking bad habits and creating newer good ones. But those little savings do add up over time. A useful way to do it is to indulge in weekly challenges. The aim is to say aside a weekly sum for yourself which ultimately adds over time. The key is to double the amount at the end of the next week and so on until the end of the month.

And you can start with a single expense. Let us say Monday to Friday you cut down on your coffee and save $5 a day. $5 seems like an inconsequential amount. But go on doing this and you end up saving 25$ a week and finally 100$ a month; all by only cutting on coffee!!!

The point here is to start small and ignore your big saving goal as of now. These small saving goals finally culminate into your bigger saving goal and soon you will find that the 1,00,00$ you wanted to save for marriage is not an unattainable goal as previously thought by you.

3. Make Saving Automatic

Automating your finances is the perfect system for saving money.

Once you automate your finances, you're going to feel an almost instant change in how you approach money. You're going to know exactly how much you can spend each month because you eliminate any scope of overspending and the temptation to go overboard when you see money at hand.

Almost all banks offer automated transfers between your checking and savings accounts. You can choose when, how much and where to transfer money so that a portion of every paycheck goes directly into your savings account.

Setting up automated transfers gives you control since you don’t have to think about it, and keep you out of bounds for spending it. So, if you want to save up for any purchase, there’s no better way to do it than a sub-savings account you create to save for specific purchases or events.

These sub-savings accounts can be for a new car, a new wardrobe, a trip you want to take, marriage … anything at all. Now every time you want to make an expensive purchase, something really big, you do not have to sweat and fret over it because you know that you have the money stashed up and you can go ahead guilt-free.

Remember we are human beings and human beings tend to be emotional (read going overboard at times!!) at times. So, make the system work for you so the saving for you and reap the benefits.

Don't Be a Brand Loyalist

Don't Be a Brand Loyalist

4. Don't Be a Brand Loyalist

If you’re a brand loyalist – someone who repeatedly buys a product or service – beware.

Chances are that your brand provider knows that you are addicted to his brand and do not care about prices. This might also lead to situations when he may be taking advantage of your loyalty and charging you a higher price for the same product. Don’t let your emotions come between your savings. If you are getting a better deal somewhere else, go for it.

As Michael Ginsburg, the founder of Spending Hacker rightly says.

"Not only will being loyal not get you a better deal, but it's also almost certain to end up costing you more. Make sure you have no brand loyalty and are willing to switch whenever a competitor offers better value."

That said, sticking to a budget does not mean that you should deprive yourself of all of the joys in life. While saving is important, we also need to guard against being too much frugal or miserly in life.

You need to avoid getting into the trap of "poverty" mentality; a mentality in which one is so preoccupied with the shortage of money that he starts missing the little joys of life. Cultivate an abundance mentality in which you base your decisions on the obvious benefits and the scarcity of resources.

The trick is to strike a balance between what you want to buy and when you need to stop once you have hit your limit for the month. Once you do that you are in control of your life, your life goals, and what you exactly need to do to achieve those goals.

As Warren Buffett has rightly said.

“Don’t save what is left after spending; spend what is left after saving”

Sources

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2022 Ravi Rajan

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