Our CFO keeps telling us that, “you need to spend money to make money,” and he’s right!
There’ll come a time in every small business owner’s journey where you will need to make a big purchase for your business in order to take it to the next level. The value from this investment could improve operational efficiency, attract more customers and/or grow the business.
Whether you’re planning to buy new equipment, a physical store location, or a vehicle, setting aside money each month can help make your dreams a reality. But what do you need to consider, and how much should you save? Here are some budgeting tips to help you save for your next big purchase.
Determine the Cost of the Item
The first step to saving for a big purchase is determining how much the item costs. This may seem obvious, but it’s important to have a clear idea of the total amount you’ll need, think of this as your budget goal. This will help you set a realistic savings goal and determine how much you need to save each month.
Consider Your Timeframe
Do you need to make this purchase right away or do you have some time to start saving? The timeframe in which you need to save for your big purchase will impact how much you need to save each month.
Let’s say you’re working with two potential timelines: six months and one year. Let’s also say the item you want to purchase costs $1000. On the six month timeline, you’ll have to set aside $167 per month to make the purchase. Whereas on the one year timeline, you’ll have to set aside half that amount, $83, which can be less daunting.
Create a Budget
Once you know how much you need to save, it’s time to create a budget. A budget will help you track your income and expenses and identify areas where you can cut back. With your budget, you can determine how much money you can realistically set aside each month for your big purchase.
If you’re following our budgeting best practices, you can use the same technique for an emergency fund for this big purchase. Including a section of your budget for savings as a fixed cost can help you automatically save while working within your budget.
Set Realistic Goals
It’s important to set realistic savings goals. If you set a goal that’s too high, you may become discouraged and give up. On the other hand, if you set a goal that’s too low, you may not have enough money to make your purchase. Take a look at your budget and determine how much you can realistically set aside each month. Don’t forget to factor in unexpected expenses and emergencies.
Not sure what’s a realistic savings goal? Check out some small business budgeting techniques to see what works for you.
Consider Interest Rates
If you’re saving for a big purchase, you may want to consider putting your money in a high-yield savings account. This can help you earn interest on your savings and increase your overall savings amount.
Pro Tip: Compare interest rates from multiple sources to make sure you get the best deal for your goals.
Track Your Progress
It’s important to track your progress as you save for your big purchase. This will help you stay motivated and make adjustments to your savings plan as needed.
TrulySmall Expenses makes it easy to track your budget so you know exactly how much you’re saving each month.
Simply set a budget goal for each expense category, connect to your bank account and we’ll automatically update each transaction to the appropriate budget to keep your spending in check!
Some points to consider
Understanding your budget goal and the timeframe you’re working with are the most important things when budgeting for a big purchase. However, there are a few more things consider that can help save you money along the way
Hidden Costs: When budgeting for a big purchase, don’t forget to factor in any hidden costs that may come up. For example, if you’re buying a laptop, you may need to budget for warranties and other accessories.
Negotiation: With certain big purchases, it may be possible to negotiate the price. Make sure you research the market and have an idea of what a fair price is. Negotiating can help you save money and reduce the amount you need to save.
Payment Plan: Some big purchases may offer payment plans that allow you to make smaller payments over time. While this may be convenient, it’s important to consider the interest rates and fees associated with the payment plan. You may end up paying more in the long run.
Trade-ins: If you’re making a big purchase like a car, you may be able to trade in your old vehicle to help reduce the cost. Make sure you research the value of your trade-in and negotiate the best deal possible.
Financing: If you’re making a big purchase and don’t have enough savings to cover the cost, you may need to consider financing. Make sure you understand the terms and interest rates associated with the loan before you agree to it. You don’t want to end up with a loan that you can’t afford.
Wrapping it up
In conclusion, saving for a big purchase takes time and effort, but it can be done with careful planning and budgeting. Consider the cost of the item, your timeframe, and your savings goals when setting aside money each month. Don’t forget to track your progress and make adjustments as needed. By following these tips, you can make your next big purchase a reality.