Finally, you have a couple of months where things are going well. The bills get paid on time, and you actually have money left at the end of the month. Then, pow! Without warning, the water heater bursts, the car breaks down, and the first half of the property tax bill is past due — and suddenly you're broke.
How can you possibly plan or budget for life's big-ticket items? Many people believe it just can't be done, and they have no choice but to rely on their credit cards to cover the cost of emergencies — whether it's something they should have known was coming or not.
There is a way out: Anticipate these expenses. You know they're coming, so cut the price tag on that big-ticket item into small pieces, and make it as routine as paying the phone bill.
Define the goal
The first and most important step is to figure out what your next big money decision will be. You may not be aware you have any, but the truth is you have several to choose from. Do you think a big dental bill is coming your way? Is your car starting to show its age?
Let's say, for example, your refrigerator is slowing down. At 7 years old, you'll be lucky to get three more years out of it. Knowing this gives you something valuable: time. Time to start researching and saving.
What style and size do you need? About how much will it cost? Are there options you should consider? Brands you should avoid? Look into it now.
Identify the terms
If you start saving for the refrigerator right now, you'll have about 36 months. Let's say you determine that it'll cost about $1,800. Divide that amount by the term of 36 months. The result is about $44. You'll need to save $44 each month starting now so you'll be able to replace your refrigerator in three years.
Make it smaller
Cut your goal into pieces; smaller payments are psychologically easier to handle. Instead of 36 months, divide the cost of the refrigerator by 156 weeks. With this slight change in terms, you need to save only $10.26 each week to reach your goal.
Make it predictable
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View this as a new, regular bill you must pay each month — or week. It will soon become as ordinary and predictable as your mortgage or car payment.
Set up an account
Don't keep this stash in a drawer, or even in your regular savings account. That puts the money within easy reach and makes it too available for you to borrow for some other purpose. Create a savings account specifically for the item you want to buy instead. Check out the website SmartyPig, a fabulous online savings bank that makes saving easy and fun. Your account is free; there are no fees and no minimum requirements.
Make it automatic
Set up an automatic savings plan to regularly transfer money to your SmartyPig from your regular household account.
Visualize the goal
Stay focused by finding a picture of the item. Post it where you'll see it often, like on the fridge. This will go a long way in motivating you. Get creative, and draw a grid over the picture with a pen and ruler so you have the same number of squares as payments you'll make. After each payment, fill in a space on the grid with a highlighter.
A little more now and then
Look for new ways and frugal choices that will result in money you can put toward reaching your goal even faster. The money you saved on groceries this week? Use it as an extra payment. The loose change in a jar on your dresser? Use that, too.
One goal at a time
About now you're probably thinking about several savings goals you want to work on simultaneously. I understand your enthusiasm, but I know from experience that it's best to start slowly. If you have additional funds, use them to reach this goal before starting on another. In time, as you become adept with managing big money decisions, you'll be able to handle several at once.