Here are a few tips on how to plan for life’s big expenses:

1. Prepare a budget to assess your current situation
2. Do your research
   • How much will this purchase ultimately cost you including extraneous expenses such as taxes?
   • If you finance the purchase…
     • How much will it cost you per month?
     • Do you need to put money down?If so, how much?
     • What is the annual interest rate?
     • When will payments begin?
     • When will payments end?
3. Evaluate where this purchase fits into your existing budget.

*Note: You should NEVER tap into emergency funds for big purchases. These funds are set aside in the case of a sudden illness, loss of job or other unexpected reasons.

Once you have evaluated your situation you may need to either save more or spend less. Here are a few tips on how to save money for those big expenses:

1. Set aside money monthly in a savings account towards the purchase.
   • Working with a banker to withdraw money each month from your checking account and deposit it into your savings account automatically can help you save by taking care of the hassle of transferring the money and limiting your accessibility to it through a debit card.
2. Work overtime.
3. Take on a temporary second job.
4. Sell items.
   • This can be done in a garage sale or on several websites across the web, such as eBay.
5. Cut back on non-fixed expenses.
   • Try reevaluating the items you choose at the grocery store, or the number of times you go out with friends to eat, or for drinks.
6. Cut back on frivolous expenses.
   • Cutting back to 1 latte from Starbucks a day instead of the regular 2 can save you around $100 a month.
7. Evaluate other purchase options.
   • Sometimes we have to reevaluate our expectations and purchase a less-expensive option. To help you separate what you need from what you want, take a sheet of paper and divide it into two columns. On the left, write down the features this big purchase must include. Then, on the right, write down the features that you’d like to have. Then compare the results to the options that are in your price range.
8. Wait longer.
   • This may help you come up with a larger down payment, which in turn can lighten your monthly payment.

But how much should you really save? A great baseline for saving is the 70:20:10 rule. This rule is great because it can apply to any saver, at any income level. It is also a great concept because it accounts for not only long-term saving, but the short term as well.

To take advantage of the 70:20:10 rule you should allocate your income as follows:

70% – Expenses/Spending

• Rent
• Heat & Electric bills
• Cable & Internet bills
• Food
• Clothing
• Gasoline
• Medicine

20% – Savings

• 5% Emergency Fund
• 5% Goals
  • Computer
  • Vacation
  • Tuition
  • Car
  • Special Event
  • Designer Apparel
• 10% Long-term (Retirement)
  • IRA
  • 401(k)
  • 403(b)
  • Company Pension

10% – Debt Payments

• Credit Cards
• Student Loans
• Car Payment
• Other Financed Debt

Saving Strategies to Remember:

Although it seems obvious, you should be aware that if you increase or decrease the percentages in any one category, another will be affected. This can be used either positively or negatively for your savings depending on whether you exceed the rule for spending or debt payments.

Once your emergency savings fund equals 9-12 months of your current income, depending on your comfort level and situation, feel free to put money into other investment vehicles such as stocks and bonds.