Saving money is one of the most important parts of maintaining a healthy bank balance. Ideally, you should save money for a variety of purposes. Most importantly, you want savings for emergency situations.
Life can sometimes be messy, with sudden and unexpected expenses cropping up when you least want them. Your car might break down or be involved in a collision, or perhaps your home might get damaged or flooded. You might lose your job and, subsequently, your income. It’s recommended that you have at least three to six months’ worth of your income saved, to cover things like this and provide a safety net.
However, another reason to save your money is for a large purchase. Whether you’re looking forward to a family vacation, a new car, a new house, a home renovation, or something else that is bound to cost a lot of money, your savings will help you to achieve your dreams. Here’s how to get the most out of them.
Savings or Loans?
Many people take out loans when making a large purchase. This is a reasonable option, sometimes it’s difficult to raise all the money right away and a loan can be more realistic. However, the ability to take out a loan is no reason to go into a large purchase thoughtlessly.
Loans are not free money, and while it’s tempting to simply pay the minimum amount towards the loan every month, you can end up eating a lot more in expenses than you can afford this way. Even if you plan on taking out a loan before making a purchase, you should budget for the loan payoffs and aim to pay it off as quickly as possible.
Depending on the purchase, you will need to pay a deposit even if you will take out a loan to pay off the bulk of it. This means that you still need to save up beforehand, as some deposits are hefty expenses in their own right.
For example, if you plan to buy a property, then you’ll have to pay at least 10-20% of the home value before you can take out a mortgage. A larger deposit can save you money, as you pay off the loan quickly and lenders might be willing to give you a more favourable interest rate.
Budgeting For Expenses
As well as budgeting for the initial purchase, it’s wise to budget for additional expenses that are related to it. Again, while the deposit for purchasing a property is usually around 10% of the total property value, you will likely have to spend more money on processing fees.
The same applies to other purchases, such as vehicles. As well as the cost of the car itself, you have to consider the costs of running the car, as well as insuring it. If you still need to save a bit of extra money, then look into used car dealerships and find deals with warranties for your new vehicle.