A good plan of action is a must for a big-ticket item purchase. In other words, these are called large purchases, which include weddings, travelling, home refurbishment, and a new car. You know that you will need money in years to come for these expenses, so you should start stowing away money from now onwards.
Even though you need to finance your big-ticket item, a considerable size of savings will keep the loan-to-value ratio low, helping you save money on interest to be paid on the debt. An impromptu decision leads to taking out an unaffordable loan which results in an endless debt spiral.
With deliberation, you can make large purchases without breaking the bank. Here are the steps you should follow to put by for big-ticket items:
Find out the estimated cost of the item you want to buy
Not until you know the approximate cost of the item will you be able to have a successful budget. “If you need money to buy a laptop, you should check at different stores to see how much it will cost you.” Compare store prices with the prices of online stores as well.
“However, there are some purchases that include additional costs on top of the initial purchase price.” For instance, a car budget cannot be framed just based on the market price of the car. You will have to take into account the insurance cost, registration, fuel efficiency and maintenance.
The actual cost will certainly be higher than the estimated cost, so your budget should have room to cover additional costs. Having a buffer will help you avoid blowing up your plans.
Work out how soon you need to have saved enough money
It is usually not required to have a specific deadline for a large-item purchase. Of course, you will keep stashing a set amount of money, and once you are done, you will buy an item you want, like a car, laptop etc. However, in certain circumstances, you must meet a deadline. A wedding is the perfect example to justify it.
Set an arbitrary deadline and calculate how much time you will have to set by every day. Have a buffer period so you do not run out of money on your big day. For instance, if you need £10,000 for your wedding and have 20 paydays before your wedding day. Divide the wedding expense by the number of paydays to get to know how much you need to stash away every month. In this situation, you will have to save £500.
You need to fit it into your budget after knowing the amount to be saved each month. Remember that you should be able to cut it without struggling with other expenses. The calculated amount is likely more than you can afford to save. If it is for buying a laptop, you may adjust your monthly savings to your current budget. What if this is for your wedding?
You will have to adjust your due date. In the above example, you will have to start saving money days before so you successfully manage to set aside money before the wedding day.
Pay yourself first
Many a time, you fail to set aside money for your big purchase because you do not adhere to your plan. Pay yourself first whenever you get your pay. Link your payment account to your savings account and use the auto-debit feature. It will automatically build your savings.
Avoid keeping money at your home; otherwise, you will end up dipping into it. Make sure that you maintain self-discipline so as to achieve your savings goal. You will likely come across some sort of unexpected expenses. You may finance them with doorstep loans with no credit check.
Your budget may not have enough scope to keep up with payments along with savings. It is fine if you cannot contribute to your savings account, but make sure that you replenish the loss in the next month. The sooner you do it, the better it is.
What are the ways of financing major purchases?
For all setting aside money, you may need to borrow some money to meet your big purchase. It is vital to know about the financing sources that help you save money on interest. If you need a little amount of money, you can take out loans with no guarantor needed. But you will need the following loan options when you need a large sum of money:
- Personal loans
Personal loans can be ideal for weddings, home refurbishment or any kind of big purchase. “These loans do not require a guarantor, and the best part is that you do not need to put down collateral.” You will pay it down over a period of months, so you can easily manage to repay these loans. These loans can be expensive as they are not subject to collateral and even more when your credit rating is stellar.
- Credit cards
Credit cards can be useful for buying a laptop or a tumble dryer. However, it must have that much limit. If you can repay the balance in monthly instalments, it is better for building your credit goodwill. “However, most of the credit cards will allow you to pay off the balance in full within the grace period.”
- Secured loans
Secured loans are the best option when you have to borrow a large amount of money. They will help save money on interest. A lender might expect you to secure your loan when your credit score is bad. In the case of a car loan, your car itself will serve as collateral, but the down payment will be higher than 10%. Your lender will let you know if you can avail yourself of lower interest rates by putting down additional security.
To sum up
Paying for big-ticket items without breaking the bank is not impossible. “First off, you need to find out how much you need for your purchase.” Calculate how long it will take you to save that much money, and then you will have to fit it into your budget.
Financial experts advise that you keep sticking to your saving goals. If your savings still fall short of cash, you can cover the gap with various types of financing options like personal loans, secured loans, and credit cards.