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Most people dream of owning their own home or buying the car of their dreams. However, these are expensive purchases that require planning and budgeting. The average person can’t walk in and pay cash for a house or car. Most people choose to start out by saving for a down payment and then working out a budge to ensure that they can afford the monthly expense. The tips below provide some advice on making big ticket purchases without breaking the bank.
Credit Scores
One of the most important things young adults need to learn about is their credit score. Too many young people aren’t taught this and start accepting every credit card offer that comes in the mail. Soon, they are sitting on a mountain of debt they can’t pay and their credit score will suffer. Often they don’t even realize this until they go to purchase a house or car and can’t qualify for a loan.
Parents and teachers need to explain this to students before they enter the real world of finances. Adults already on their own need to protect their credit score and make sure all of their accounts are up-to-date and paid in a timely fashion. Interest rates and even the ability to qualify for loans are highly dependent on having good credit. Individuals should use sites like Freecreditscore.com or Annualcreditreport.com to determine their current credit status.
Down Payment
It is a good idea to start saving for a down payment for that house or car before going shopping for it. Car loans typically require 10 percent down unless the buyer has excellent credit. If for any reason the consumer has bad credit, they can still find sites like Autocreditexpress.com that will help you determine the right payment option to fit your budget. Regardless of how much money is required as a down payment, more is better. A large down payment means smaller monthly payments that are much easier to budget.
If a large purchase is on the horizon, start saving money early. It’s easier than most people think to put away extra money. Some idea to start a savings:
- Skip the latte on the way to work and put that money in savings.
- Pack lunch and only eat out occasionally.
- Rent or stream movies instead of going out.
- Invite friends over for games and drinks, much less expensive than going to bars.
It’s not hard to find ways to cut back and put money away for a down payment. Plus, when it comes time to make payments every month, a working plan for saving is already in progress.
Budget
Before making an expensive purchase, it is important to create a budget. To decide the correct periodic payment, start out with a spreadsheet that lists all monthly debt and income. Determine how much money is left after all necessary bills are paid. Make sure to account for groceries, gas, and other essentials. The money that is left can be applied to a new payment. However, the payment should not be the entire amount that is left. There should be money for emergencies. It may take some skillful planning and foregoing leisure activities to make the purchase fit the budget, but if it is wanted badly enough, it can be done.
Emergency Funds
Finally, before making any major investment, it is important to have a savings account for emergencies. Medical emergencies, job loss, and other factors could cause budgets to become obsolete. In order to ensure that payments are made, a savings account should be a necessity. There are varying opinions on how much one should save, but most financial experts agree that a savings account should have enough money to last from nine months to one year. While this is not practical for most people, an emergency savings should be in place to help when necessary.
Buying a new car or a house is a huge accomplishment that can be done with ease as long as planning and budgeting are used. Create a plan on how to save for the down payment, create a budget to stay on track with payments, and always have an emergency savings account to keep payments current. Following these simple tips will make it possible to have that new car or house.
We are planning for some big ‘ticket items’ in the next years: a car for my husband, a van for us to travel etc. We plan on saving the money for these both and buy them with cash. It’s something we’d like to have solved in 3-4 years time, so we should have plenty of time to save and then buy them both.
Another thing to remember is to not make other purchases that would make your debt to income ration worse. I remember when we were talking with our mortgage broker about our first home, she warned us to not look at buying a car, or anything else that would go on a line of credit because that could affect our mortgage qualification.