Disclaimer: Although my degree is in Financial Planning, I am not a financial advisor, accountant, attorney, or tax advisor. These blogs are for informational use and all advice is based on my personal research, my experiences, and my opinions. You have to do your own research and I do not take responsibility for any losses that come with my advice. Everyone has unique circumstances and consulting a professional is always the best option.
*If you haven't already, read my first blog about the 3 things to do with your money before reading this one.
How do I save up for a big purchase? How much should I save in general? Should I put my savings in a CD or leave it in my savings account? Should I invest the extra money I have in my savings? Questions that need answers.
Saving up for a Big Purchase
I know everyone wants the secret on how to save up a large amount of money for a big purchase, but the key is: discipline, discipline, and more discipline. The issue with our culture is that as we continue to earn more money, we continue to spend more money. We think to ourselves “If I just made $200,000 I would be set”... but then we end up spending all that money and wanting more! Saving up for a big purchase lies in consistent discipline to choose that goal over instant gratification. On top of consistency, goals also need to be achievable. Sometimes the amount you are trying to save up may seem impossible, so break your large goal down into daily or weekly savings goals if you need to so that you feel more confident about achieving it. Goals are accomplished or failed because of daily routines and habits.
I always recommend writing your goal down and placing it somewhere that you will see it everyday. Research has shown that you are more likely to accomplish a goal if you write it down. After writing it, it’s now in your hands to choose that goal over your impulse purchases EVERYDAY. Your daily actions and routines will decide how much you really want something.
For example, I want to travel to Greece in a year. I know that a round trip flight will cost about $1500. I also know that I want to have $2500 available to spend when I am in Greece. This means I need to save $4000 in 1 year or I need to save $340 every month or I need to save $85 every week. Every time I decide to buy something random on Amazon, buy CFA, shop for a new phone case on IG, etc, I am choosing those items OVER my trip to Greece. What is more important to me? Yes, the phone case may be $20 and the Amazon item may only be $15, and the CFA is only $7... but what happens when you continue to buy those things over and over again? It adds up more than you think. By the end of year, I would have have literally decided that I would prefer to have all those random items than my trip to Greece.
Look around your space right now and think about all the things you own that you really don’t need and didn’t need to ever buy. Remember your goals when you want to swipe your card and stay disciplined. You can do it!
💲Pro Tip: Find someone to hold you accountable if you need to. Someone that will actually keep you on track with your spending goals, not someone who will shy away from calling you out. You’ll thank yourself later and it’s so gratifying being able to do the things you want in the future because you planned ahead of time and stuck with it. You should be controlling your money and what you want to do with it, don't let your money control you.
💲Pro Tip: If you have friends that love to spend money, tell all of them ahead of time that you are saving up for _____ and won’t be eating out, going shopping etc. as much anymore. This ensures that they know the reason why you may not go out with them as much and won't be pressuring you. These same friends can also hold you accountable. Are they really a good friend if you tell them your goals and they encourage you to stray away from them?🧐
What should I do with my extra savings?
I think everyone should keep some money in their primary savings account, but I would also recommend that any large savings (like an emergency fund) is moved over to a high yield savings account. This is discussed in my first blog so if you haven’t read that yet, start there. After fulfilling your savings goals, people often ask - should I open a CD? Should I invest my extra money? Should it just sit there?
CD - CD stands for certificate of deposit and it is a savings account that offers higher interest rates than normal savings accounts. The catch is you can’t withdraw the money for a specific period of time or else a penalty fee will be charged. You typically deposit a large amount up front when you open the account and cannot continue to contribute to it like a normal savings account. I never recommend CD’s because you can earn the same interest rates or higher on basic savings accounts rather than tying up your money and not being able to withdraw it for a specified time period. If CD's are what you’re considering I think it’s better to find a high yield savings account and keep your savings there. I discussed 3 options for high yield savings accounts in my first blog of this series.
Investing - If you have an emergency fund set aside and have extra money to invest this is another great option. I use Betterment for my personal investment account and my retirement accounts. Robinhood is another app/website people use to invest. I will do a blog specifically on investments, but for now I will just say that a good rule of thumb is… if you need the money in five years don’t invest it. Stocks go up and down all the time and if you’re going to need the money you don’t want to have to be forced to pull it out when your investments are falling, which will lead to you losing money. Only invest money that you are OKAY WITH LOSING and only invest if you won’t need access to that money for at least 5 years.
💲Pro Tip: If you are just keeping all your money in a savings account, you are losing money. Over time, prices of things increase (Gas used to cost .50/gal but is now $2/gal) So if I save $10 from 1950 and use it in 2020… that $10 won’t do much for me. If you invest $10 from 1950 and it grows to $1,000 that’s more helpful than just saving your $10. I know investing can be a scary thought (I avoided it for years because I was scared to lose my money!) and no one teaches us about it (at least no one taught me about it)... but just saving your money is not benefiting you either. It is also a risk to just keep your money in a savings account forever. I had to take the leap of faith and you should too. There are plenty of platforms today that do everything for you and you can just automate your savings to be invested. You do not have to be an investment guru to get started. #TakeLeapsNoLimits #KOtheCOMP
Write your goals down and post them somewhere that you will see them everyday
Break your goals down into mini-goals and set up daily routines and habits that will help you succeed
Find accountability partners to help you stay disciplined
If you have extra money to invest and want to take the risk, start changing your mindset about it so that you can take the first step! Blog coming soon :)
Comment any questions you have or something new you learned and share this post with your friends