One reason people fail with their money is that they never learn how to save for big ticket items. As a result, whenever they start thinking about buying something they automatically think about buying it on a credit card or making a consumer loan.
It is critical to break this habit and learn how to save up the money first, then buy what we need or want. Financial success requires it even though few realize how important it is.
Saving up for major household expenses is one of the key steps toward success with money. When you practice it, it will dramatically change your life.
So how can we make it happen.
Why Save for Big Ticket Items?
First, understand the value. It is easy to downplay the importance of this practice, but the truth is that at the heart of the habit of saving up for big ticket items is a basic attitude toward spending, one that is about as important as anything related to success with money.
As my parents and grandparents put it: if you can’t pay for it you can’t afford it.
My parents and grandparents consistently lived by an attitude toward money that was considered simple common sense at the time: if you can’t pay for it you can’t afford it. Besides being an obvious truth, it was also considered a moral obligation.
Moral obligation aside, the fact is that it is still common sense. No one can succeed financially…
- without learning how to spend less than they earn.
- without learning how to delay gratification of their wants.
- without learning how to save.
Overcoming the power of instant gratification requires developing a long term view instead.
The fact is that everyone is going to pay for what they buy. Either you pay when you buy or you buy on credit and pay more later. If you want to pay as you go (which additionally means paying less and buying more) it is essential to save up some money to buy with before you buy. Pretty obvious isn’t it.
Must I Save for Every Big Ticket Item?
The absolute, long term answer is “Yes!” More or less. It is true as an underlying principle, but there are some considerations.
There is an undergirding principle. Some purchases increase in value. Others (most) decline. For that reason it can make sense for most people to borrow at least part of the cost of a home. Equally, there is the fact that a home is a necessity and must be rented if not purchased.
Automobiles are another thing. They decline in value rapidly, especially newer ones. Even though I haven’t financed any car for a very long time myself and strongly discourage it, I can see that in some circumstances it makes sense to finance a vehicle when it is an absolute necessity for employment.
Avoid “rationalization”. That’s a four dollar word for adopting irrational excuses for doing stupid things!
But never a new one. If it really is necessary, buy as cheap as you can, say $1000.00 or less. Next, save all you can for 6-8 months (a little more if necessary) and then trade up. Do it again several times until you can drive a reasonably nice vehicle.
It may be necessary to borrow for major household expenses in a few other special circumstances such as to get essential medical attention. But great care needs to be given to avoid “rationalization”. That’s a four dollar word for adopting irrational excuses for doing stupid things!
Can I Always Save for Big Ticket Items?
Yes, we can all do it and it is not as hard as we think before starting. The truth is that almost all the financial problems people have come from spending just a few dollars more than they earn. So it only takes a small adjustment to start getting ahead.
If you still use a credit card with an ongoing balance for any purchases start by reducing the balance at the end of the month a little at a time until you are paying it off completely every month.
Get on the positive side of the cash flow, and soon it will all be pay as you go.
Then, make small adjustments each month toward paying cash or using a debit card rather than a credit card. Get on the positive side of the cash flow, and soon it will all be pay as you go.
Next, save up for a small expenditure, then a larger and larger one. If necessary, save two months for something you could buy in one, just to learn to wait. Finally start saving up for major household purchases such as furniture or appliances.
Before you know it you will be saving up for all purchases. I haven’t financed anything for years. Even a car. And I do not find it to be difficult once you get ahead of the game. The secret is to work at it a step at a time until it is integrated into your lifestyle.
A vital part of this process is to maintain a separate account for this use. If you keep at least one or two thousand dollars in savings for major household purchases, even when an unexpected need arises you can handle it without borrowing.
From Now On Make It Pay As You Go
There are many benefits when you learn to save for big ticket items in addition to what is mentioned above, such as the personal satisfaction of buying something when you know you have earned the right to do so rather than feeling like you are stepping into a confining debt.
There are many kinds of saving. This is one that is more rewarding than most. Almost from the beginning you will begin to feel better about yourself and your money.