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Vacations, new furniture, new electronics, home repairs… large purchases happen, how can we be best prepared for them?

This year I have so many large purchases coming up. Traveling for a wedding in May, traveling for a wedding in June, traveling for a vacation in December. I knew about these trips a while back, so I have been preparing for them. I have found a process that works best for me to save up for large expected purchases. This process makes me less stressed about spending a lot of money at once, because I am prepared for it. Let me explain…

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Big expenses come. How can we be best prepared?

One thing to note here is I am talking about expected expenses. Not emergencies. Emergencies come from my emergency fund. Large expected expenses come from my “Large Expenses” account.

Let’s say I know in 8 months I am going to book a weekend trip for an upcoming wedding. Let’s say that trip is going to cost me $1,400 all in.

There are really 2 ways to go about this:

1. Do nothing. Wait until 8 months from now to book the trip. Have to find an extra $1,400 from your monthly budget… or even worse, put it on a credit card. This is being reactive.

2. Knowing this big purchase is coming up in 8 months, you can work backwards to start setting aside a little bit of money today so in 8 months when you spend the money, you are not having to find the extra $1,400 to spend. This is being proactive.

I like being proactive, not reactive. So how do I do this?

I follow a very simple process with this. Where I hold my emergency fund, I opened another savings account that I called the “Large Expenses” account. This is where this money is held until I spend it. It is never invested.

Once I know the amount I am expected to spend & the length of time I have until I am spending it, I head over to an online calculator to see how much I need to start setting aside each month.

From the example above, I need to save up $1,400 in 8 months. My savings account currently is paying me 4.35%.

Use the calculator here: https://www.nerdwallet.com/article/finance/savings-goal-calculator

Based on this calculation I need to start setting $172.79 per month aside into my large expenses account to have the $1,400 I need to spend in 8 months.

Why do I do this?

If I were to choose option 1, I would be stressed about spending $1,400 in one month, probably having to put it on a credit card & end up spending way more than $1,400 on the trip.

I like to be proactive with my money. Setting aside $172.79 a month is way easier than in one month spending $1,400. Since this large expense is expected in a little less than a year, I can be proactive to get started saving on it today.

When I do this type of saving for large expenses process, I am less stressed about money because my monthly budget sees less month to month fluctuation vs spending $1,400 in one month on a trip.

Just a little tip I have found work best for me when saving up for large expenses!

Real quick, my podcast called The Decade Investor Podcast releases new episodes every week. This week I dropped three new episodes:

1. 55: My Simple (yet effective) Personal Finance Set Up

2. 56: How To Save For Big Expenses (Weddings, Vacations, Cars)

3. 57: Becoming an “Overnight Success” in Investing

You can listen to them on any podcast playing app here: https://thedecadeinvestorpodcast.buzzsprout.com/share

The goal of my newsletter, my podcast, my social media is to help educate you on money & make sure you set yourself + your future generations up for success with money!

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Thank you so much for reading & I will see you next week! Until then, keep buying assets.🙂 

- Decade Investor