Major purchases can be daunting.
Home-buying, car shopping, prom, or wedding planning are some of the biggest spending moments of our lives, and while they can be beautiful milestones, they can also be costly. If this sounds like you, you’re not alone. About 34% of Americans are avoiding buying a home or automobile because of recession-related fears car due to recession fears per findings from the BMO Real Financial Progress Index.
Fortunately, even with a modest income, you can budget your way into your next big purchase without breaking the bank—but many of us just…don’t.
Almost 30% of Americans don’t budget because they find value in the practice. Another 10% don’t feel like making one and also don’t know how to get started. With companion tools like apps, financial planners and AI-powered platforms, you don’t have to go at it alone. Here are a few tips we’ve found to be tried and true when budgeting for major purchases.
Get clear on what you’re saving for
You may be aiming to get a home, car and go on an international vacation all in same year, but your finances may be telling a different story. While goal-setting is important, when budgeting for major purchases, it’s important to also be realistic. When starting out, it’s important to clearly lay out how much each purchase will cost and outline how much you can afford to put toward the buy.
Writing either in your notes app or on an actual piece of paper, first the item you want to buy, and then it’s sticker price along with your income can give you a good gauge of what you should prioritize and for how long. For example, if you pull in $89k/year and want to purchase a $32k car in cash, it may be tough to also plan to pay down all your debt at the same time without sacrificing your living costs.
Don’t sacrifice your immediate costs first
I get it, you want what you want when you want it. But don’t risk the viability of your financial health focusing on your making your major purchase by neglecting the smaller ones. Using apps like GoodBudget can help you intuitively track purchases and assess what you can and can’t allocate toward your big buy.
Consider using the 50/30/20 Rule
The 50/20/30 rule of budgeting categorizes your budget in three ways: needs, wants and savings. With this method, you typically allocate half of your income to the necessities like food, housing and medical care.
The 30% of your income is dedicated to your entertainment-based purchases like new clothing, trips and dining out. Whatever is left should be stashed away for savings, either for emergencies or large future purchases.
Again, making technology do the heavy lifting is a great way to get the tough job of budgeting done without even thinking about it. For instance, YNAB helps you assign a job to every dollar that comes into your account. You can use it’s auto-import function that syncs transactions from your bank(s) and categorizes them for you.