Set S.M.A.R.T goals
The S.M.A.R.T (Specific, Measurable, Achievable, Realistic, Time-limited) goals methodology can be applied to most any goal you hope to achieve. However, it can be especially helpful for goals you have that are tethered to your finances. Think of this as the base of building your toolkit for reaching your big-purchase goal. Using the example of buying your dream car, here’s an example of how to use it:
| Smart | I want the new “Dream Car”. | Find the exact item you will purchase. |
|---|---|---|
| Measurable | It costs $76,450.30. | Calculate all costs associated with the purchase including taxes, fees, insuring etc. |
| Achievable | I can buy it from the dealership down the street. | Your purchase should be attainable within the boundaries of reality. |
| Realistic | I reviewed my finances and I can reasonably save for this purchase. | This will be determined by personal factors including your current financial situation. |
| Time-limited | I plan to make this large purchase in one year. | With all the above in mind, set a realistic “timer” to establish a sense of urgency. |
This tool can be used to help you reach any financial goal you may have including saving for a home, wedding, vacation or retirement. Once you have written down your S.M.A.R.T goal, make sure it is placed somewhere you will see it to motivate your spending and saving habits accordingly.
Open a dedicated savings account
When money is easily accessible, you’re more likely to spend it without a second thought. That’s why having an account that is dedicated to saving for your large purchase is important. With a separate savings account, you can set up automatic direct deposit of your paycheck so you won’t need to visit the account and be tempted to withdraw money for other expenses. Additionally, you can increase your success by opening a savings account at a separate bank from your primary one. Keeping your savings as “out-of-sight, out-of-mind” as possible is a healthy recipe for saving money quickly.
Avoiding excess purchases
Any purchases outside the normal scope of what is needed for you to live comfortably will simply set you back further from your goal. Reviewing your finances for subscription services that you don’t need any more or cutting back on entertainment spending are examples of avoiding unnecessary purchases in small ways. Avoiding other large purchases while you’re working on reaching your current big-purchase goal is also important. Set one large financial goal at a time to help you stay focused and maintain momentum on your money-saving journey.
Pass on plastic
Credit cards and digital wallets make spending money fast and easy, which can lead you away from saving for your large purchase. A study conducted by MIT showed that sometimes credit cards made people spend up to 83% more‡ money than if they were using cash. So, try limiting your online and credit card spending only when necessary (i.e. paying bills, emergencies etc.) Putting a freeze or hold on your credit card can also help remind you to pay with cash instead. You can also hide your card in a safe spot in your home to keep temptation at bay. If you’re concerned about tracking certain payments, writing a check that’s linked to an account that’s not tied to your big-purchase savings.
With the help of these and other personal finance tools, you’ll be on your way to saving up for whatever large purchase you have in mind. If you need additional help, a financial advisor can also assist you with these and other, long-term savings goals.
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