Many people can't imagine completing a marathon–26.2 miles is a daunting distance. What also may seem out of reach for many is buying a home (the median price of houses sold in the U.S. in Q1 2023 was $436,800†) or a new car (the average transaction price in February 2023 was $48,763‡).
But like long-distance running, slow, steady training, or in this case, budgeting, saving and investing may help get you over the finish line.
Preparing for big purchases
How to budget money for one, two or maybe three big purchases can be simplified if written out. More than three may spread yourself too thinly.
Of course, your goals may have different deadlines–purchasing a home could have a flexible timeline, while a child's college tuition may have a firm deadline.
Consider the cost of each future big purchase and determine if individually and collectively they make good sense. Planning on buying a house in 10 years and paying for a child's college tuition in seven and getting a new car in three years may be challenging.
Here's an example of a big purchase outline. Yours will differ but laying out the basic details can help determine if your goal is achievable and if so, what and how long it'll take. You might have to adjust the cost, timeframe and/or monthly save.
| New car | my portion of sue's tuition | House | |
|---|---|---|---|
| Cost | $50,000 | $15,000 | $455,000 |
| When i want to purchase | 36 months | 180 months | 120 months |
| How much I can save monthly | $200 | $350 | $650 |
| Amount saved by deadline | $7,200 | $63,000 | $78,000 |
| Notes | Trade in + down payment | Annual cost | Down payment |
Budgeting for big purchases
If your budget allows you to set aside monthly savings from your paycheck, setting up a direct deposit may help with consistent savings. This simple practice soon becomes routine, and you'll find the amount set aside–as long as it's reasonable–isn't being felt. You'll adjust your lifestyle to the 'revised paycheck.'
However, if meeting your monthly savings amount(s) will be difficult, you can extend the deadlines, reduce the cost amounts, pick up a side gig or cut some of your discretionary expenses. Or maybe a little of each of those options. If necessary, personal loan options may fill whatever gap you see, but remember that you'll be paying interest on a loan.
Like training for a marathon, or even a 5K, success will require dedication, consistency, and flexibility. Remember that sometimes life gets in the way, so understand that an unexpected event could impact your goals.
Because your credit score may impact getting approved for an auto loan or mortgage, it's important to continue paying all your bills on time. Keeping up with your saving and investing schedule will also be important.
Where to place your money
One aspect to consider as you work toward your goals is the timeframe. If the expected purchase is three to five years out, investments such as certificates of deposit, Treasury bills and short-term bonds might be appropriate in your case. If your timeframe is longer than five years, you may want to speak with a Huntington Financial Advisor to discuss options for investing. Keep in mind that all investing involves risk, including possible loss of principal.
For shorter-term goals, a money market account, a savings account, or checking account may be good options.
However you invest your savings, one of the accounts could also act as an emergency fund if it can be easily and quickly liquidated without penalty.