Ways to Save a Down Payment for a Big Purchase
Big-ticket down payments like those needed for a home or automobile purchase often require considerable preparation. Being prepared is never a bad idea, especially when trying to save substantial amounts of money. Here’s how you can make sure you’re ready for the big down payment day when it arrives:
Determine Your Savings Goal Amount
Regardless of the purchase, it’s crucial to know the exact amount of money necessary for a down payment. Remember to factor in things like taxes and fees if they apply and determine just how much you’ll need to save in order to commit to a hassle-free down payment. You should also take into account closing costs if you are planning to purchase or refinance a home. All those little fees add up quick, and if you don’t plan ahead properly, they will eat into your original down payment amount.
Establish Your Savings Timeline
Short-term and long-term savings goals benefit when you establish short- and long-term savings timelines. From start to finish, it’s advantageous to understand by when and how much you plan to set aside before the big day. Will you save money bi-weekly or monthly? Are you starting a ten-year down payment plan? Establish smaller savings goals leading up to the final amount to help monitor your progress. These small savings will also help you feel less overwhelmed because you won’t be as focused on the final large amount that you know you will have to pay soon.
- Choose the Most Appropriate Savings Method
Whether you have an “everything goes in the piggybank” savings mentality or plan to save a set amount each month, choosing the appropriate method can be fundamental to reaching your goal. Once you’ve established your savings timeline, it’s easier to decide which savings method is best suited for your short- or long-term down payment goals. Here are just a few options to consider:
- Savings account (individual, bank, fixed-rate, traditional, etc.)
- Individual retirement accounts
- Stocks and bonds
- Term share certificates (CDs)
Automate and Anticipate
Financial experts recommend that you automate your savings efforts to not only ensure you reach your goals on time but to also make saving less stressful. Furthermore, when you’re finally prepared to start saving, it’s a good idea to anticipate unexpected expenses and make room for them in your budget. A good rule of thumb is to have at least $1,000 set aside for small inconveniences and 3-6 months’ of your household expense in case of a larger emergency such as a job loss or sickness. This way, you can always stay in sync with your savings timeline.