Planning ahead for major purchases makes very good financial sense. If you save instead of buying now and paying later, you won’t pay interest which, on a major purchase, could save you hundreds or even thousands of dollars. Trying to save while keeping up with your current expenses can be challenging, but it’s not impossible.
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Here’s what you need to know about how to save for a major purchase in two years.
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Set a Deadline
There’s a reason this article is about saving for a major purchase “in two years.” If you want to save for a major purchase, it’s critical to have a deadline by which you want to reach your goal.
Without a target to reach for, it’s far too easy to get off track with your savings. Emergencies will always come up, and having a goal for your major purchase will help you prioritize your saving.
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Determine How Much You’ll Need
Creating a savings plan that works with your life is one of the secrets to success when it comes to saving for a future large purchase. To break down how much you need to save, take the total amount your large purchase will cost and divide it by the number of paychecks you get in two years.
Here’s an example: Suppose you want to pay for a $10,000 vacation two years from now. Here’s how much you’ll need to save from each paycheck, depending on how often you get paid.
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If you get paid once a month, you get 24 paychecks in two years, so you need to save $416.67 from each paycheck.
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If you get paid twice a month, you get 48 paychecks in two years, so you need to save $208.33 from each paycheck.
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If you get paid every two weeks, you get 52 paychecks in two years, so you need to save $192.31 from each paycheck.
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If you get paid every week, you get 104 paychecks in two years, so you need to save $96.15 from each paycheck.
Be Realistic
Now that you know how much you need to save to pay for your major purchase two years from now, it’s time to figure out where that money is going to come from.
If you’re living paycheck to paycheck now, it’s probably unrealistic to assume you can suddenly begin saving $2,000 a month toward a future purchase. Take a good look at your spending to see where you can cut back. Add up those expenses you’re willing to forgo in order to reach your savings goal.
If you can’t cut enough from your current budget to save what you need, the other option is to bring more money in. Perhaps you have some clothes or household items you no longer need that you could sell to bring in some money. You could take on a side hustle or a second job to boost your income, or, if you are paid hourly, you may be able to pick up additional hours to boost your income.
Segregate Your Savings
“Pay yourself first” is a well-known adage for a reason — it works.
Open a new savings account for your future large purchase, and deposit money into it every time you get paid. Having the money in a separate account serves two purposes: It makes you less likely to take money out, which could jeopardize your plan, and it serves as encouragement to continue saving as you see your money grow. An added bonus is that it can earn interest, which could mean you’ll reach your goal a little bit faster.
Expect the Unexpected
It helps to build a little wiggle room into your plan in case something unexpected comes up. Having some flexibility can keep an emergency from derailing your well-thought-out plan. If you can save a little extra from each paycheck, you’ll have the ability to pay for an unexpected expense without drawing from the funds you’ve put aside for your major purchase.
If the unexpected happens to be a financial windfall, let that work in your favor. If you get a raise or bonus while you’re saving for a future large purchase, put some of it into your dedicated savings account. You may get to your goal faster, or have a little money left over after you’ve made that purchase.
Following these steps can make it easier to save for a major purchase and can save you money in the long run. And just think how much more enjoyable that vacation will be when you know it’s already paid for!
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This article originally appeared on GOBankingRates.com: How To Save for a Major Purchase in 2 Years
