Everyone’s idea of a major purchase is different based on their income, cash flow, spending habits, etc. Major purchases can be $100, $500, $1000, $5000 and the amounts keep going up. Before making any major purchase, I always advise to sleep on it and give it at least one day. So, walk out of the store, maybe take a picture of it to refer back to or close out the internet browser. Because you will be surprised that sometimes by walking away, you realize that you don’t really want/need the item and you almost made an expensive impulse purchase.
Below I will walk through 5 steps to cash flowing a major purchase instead of creating debt to purchase it.
1st: Can you cash flow this purchase outside of your allocated emergency saving fund with your regular income? If so, easy peasy – make your purchase with cash/debit card. Don’t use a credit card because of the easy monthly payments or 0% financing.
2nd: Determine the purchase amount and set a goal (timeframe) to make the purchase. For example, you want to purchase a $1200 item in the next 12 months.
3rd: Start saving for your major purchase. Save in a bank account separate from your main bank account. Out of sight, out of mind. Bonus points if you can specifically label the account. Example: 2019 Vacation, Dream Wedding, House Downpayment, New Cell Phone, etc. Then set up automatic deposits to the established account and also add any monetary gifts from your birthday, Christmas, etc. to help you reach your goal faster.
4th: Be patient, time will pass and soon you will reach your goal without going into debt or making monthly payments on it. Patience is a must, otherwise being impatient could cause you to go into debt to have it right now.
5th. Finally- Once the allocated time has passed, proudly make your purchase (if you still want it 😊) and another bonus (5b) – attempt to negotiate the price. Everything is negotiable and if you are told, “No” I am sure it isn’t the first time you were told No and it won’t be the last. Also, what if they do lower the price and you spend lower than the amount you saved! Jackpot!
Feel free to stop right here unless you want to hear how I recently did this.
Recently, I made a major purchase:
Recently, I purchased an Open Box MacBook Pro for $1217.09 (out the door), which I’ve been planning to purchase for at least a year. The money was saved using a specific bank account via Capital One 360 labeled, “New Mac Computer”. Once I reached my savings goal of $1600 to cash flow my purchase, it was time to make the purchase. However, I still charged my computer on a credit card! GASP! Stay tuned to see why 😊
Thankfully the need for a new computer wasn’t immediate because my current Dell computer still worked. Granted it was slow at times and always updating but it still worked so that allowed me some time to save the money. (I found that when I’m not pressured or have an immediate need for an item I make wiser financial decisions.)
Being patient and taking time to decide on my purchase was a plus so I could decide which Apple computer I wanted. I was stuck between the MacBook Pro and the MacBook Air.
Since, I budgeted to spend $1500 on the computer, I saved $1600 to cover the cost and taxes with a plan to purchase within a year. Example: $1600 saved over 12 months is $133.33 a month/$61.54 every 2 weeks/$30.77 every week. To make the plan automatic and easy, I set up an automatic draft of $40 every week to this account. I also deposited any gifts to this account (birthday, Christmas, etc) Note: You could also save cash in a cash envelope but I am not a big advocate for keeping large sums of cash in my home but that’s totally up to you.
Tick. Tock. Those months started to pass by and my new computer account started to grow. I waited until Best Buy had a sale and went in the store to purchase it. Then, I noticed that they an Open Box MacBook Pro in Excellent Certified Condition (Which took another $65 off the sale price) and I also asked to see if they could do any better on the open box price and the manager surprisingly took an additional 5% off! So bonus points for negotiating a lower price! The total with taxes came up to $1267.09 and I had a $50 gift card so I ended up paying $1217.09.
So, Why did I purchase my computer with a credit card?
Prior to making my purchase, I did some research and realized that if I purchased my computer with my Citi Card, Citi would extend the 1 year standard warranty to 3 years. So that is why I purchased the computer with my credit card but paid the card off a few days later after I transferred the money from my Capital One 360 to my Main Bank Account. However, I don’t encourage using credit cards unless you know you can and will pay the balance off in full when the statement arrives or even before it arrives.
Be patient because the time will pass, you’ll meet your goal and you’ll proudly make your purchase knowing that you are cash flowing it without creating additional debt or having a balance looming over your head.
Let me know of any comments or questions.