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How do you prep financially for a major purchase - like a car, pool, trip-of-a-lifetime, etc? We are in the midst of a major kitchen and dining room remodel, which is our big purchase this year, so this is fresh on my mind.
ADVANCE PLANNING IS KEY.
The only way to pay for ANYTHING is in cash. Utilizing a loan, payment plan, or credit card is digging yourself into a hole you will have to crawl out of later, with interest. The only way to pay cash for a major expense is to plan WELL in advance.
HERE IS HOW WE PAID FOR OUR REMODEL IN CASH:
1. DETERMINE THE TOTAL COST OF YOUR PURCHASE
- For us, that meant getting approximate quotes on the various aspects of the remodel well in advance. If you're buying a car, determine the average price of the car you want. Be warned though, the process of looking before you buy can get tempting. Don't jump the gun and prematurely make the purchase - this part is just for information gathering.
2. TAKE A LOOK AT HOW MUCH EXTRA MONEY YOU CAN SQUEEZE OUT OF YOUR MONTHLY BUDGET
- If you can manage to set aside $500/month extra, then start doing so.
3. SEE HOW LONG IT WILL TAKE TO SAVE THE MONEY
- Divide the total amount of your purchase by how much you are saving per month. Let's say you are planning a $5000 vacation and you can save $500/month. 5000/500 is 10, meaning it will take you 10 months to save the money. (If you're using Scott's Cheap Flights, I'm sure you can swing the vaca for less than 5K!)
4. IF THE TIMELINE ISN'T WHAT YOU WANT, TEMPORARILY INCREASE YOUR INCOME.
- Side hustle, part time job, extra shifts, garage sale... the list goes on. If you want the process to move faster, find a way to temporarily increase your income.
4. DON'T MAKE THE PURCHASE UNTIL YOU HAVE ALL OF THE MONEY
- ALL of the money. Don't pull the trigger until you are completely ready financially. We didn't start demo until we had the entire amount for the remodel sitting in the bank. This takes patience, but it avoids pitfalls and stress if things don't go as planned.
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