Financial planning and discipline are crucial when planning for big purchases. We all have certain goals in life, such as buying a brand new car model, moving to our dream house, relocating to a different country, and planning the best vacation of our lives. However, the excitement of these big goals can quickly dim when we see the heavy price tags of the goals.
Nonetheless, you do not necessarily have to abandon your goals. Just keep in mind that saving money for big purchases is not a challenging task. All you need is a strategy.
Opt for Fixed Rate ISAs
Of course, you need to set up a savings account where you can lock money for a set term. Usually, you might want to opt for saving money for at least five years in exchange for a higher interest rate, which is where the importance of fixed rate ISAs comes in. This savings account is nothing like your ordinary savings account. The main catch is that you cannot access the money you save in your individual savings account before the fixed term is over. What this means is that even if you withdraw money early, you can incur penalties.
With that said, one of the best ways to lock your money for the bigger purchase is depositing a lump sum into an individual savings account and keeping it untouched until the term is over.
Always Pay Yourself First
It does not matter what the big purchase is about, such as relocating to a different country or buying a brand new car, you must stick to the rule of always paying yourself first before you spend on your regular monthly expenses, including debt repayments, and other activities. The focus point is to make yourself a priority when setting aside a specific percentage or amount towards your very own savings. This aspect is also known as paying oneself first.
One of the easiest ways to actually pay yourself first comes down to automating your savings, as this strategy would help remove the potential temptation to spend money on other things.
Know Your Expenses
Of course, you cannot stick to a strategy until you know what you are saving for, which is why you must have a clear picture of what your big purchases are and what their estimated costs will be. By having a clear picture, you will have a clear target, which will enable you to accurately estimate the amount you need to put aside regularly. Similarly, once you know the estimated cost, you can actually strategize your budget accordingly.
Adopt the Right Budgeting Rule
Sometimes, it can be a hassle to create a budget and actually stick to it, which is why we recommend adopting the right budgeting rule. For instance, you might want to adopt the 50-20-30 ratio rule, which is about allocating half of your income for your regular necessities, including groceries and rent. However, you will be putting at least 20% of your income towards your savings, which is where you will be paying yourself first. The rest, which is 30%, you will be spending on yourself, which is why it will be about personal spending.