Manage Your Debts

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Budgeting for Big Purchases: The How

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In the previous article on budgeting for big purchases, you were given the reasons as to why creating such a budget is a good idea.  Now it is time to venture into the how.

Like most of the techniques you will find on this site, budgeting for your big purchases is not difficult to do.  It does, however, require patience and discipline.  The options that this technique will open to you are definitely worth the effort.

Step 1: What is the Big Purchase?

This is easy.  You know what you want and you know how much it will cost.  From using personal finance software, you know how much your expenses have been for the last few months.  With this information, you can determine how much money you can afford to set aside for your Big Purchase at each pay period.  Now for the math:

Price of Big Purchase / Money Set Aside = Time Until Purchase

Using this equation, you can determine how long it will be before you will be able to afford the purchase.  If you have a particular time frame in mind, then you can divide the price of the Big Purchase by that amount of time to determine how much you need to set aside at each pay period.

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