There are certain times of year when we all have a little more to pay for than normal: holidays, vacations, birthdays, and of course, the annual back-to-school transition. No matter how flexible your household budget is, provisioning for all the back-to-school gear (clothing, supplies, and more) typically requires making careful financial decisions and tradeoffs, and it always seems like the new stuff costs more than you thought it would. Verity Credit Union has provided some tips to help you plan for next year — or for an upcoming holiday or vacation.
There are essentially two ways to save up for a big purchase: Earn more or spend less. “Earn more” is pretty self-explanatory, so let’s focus on spending less. Economizing works best in three stages:
- Determine how much the item you want will cost. Factor in all the associated costs of what you want/need and find out exactly (best estimate) how much you need to save. If you are planning to save for back-to-school shopping, for instance, make sure to think about clothing, shoes, and accessories (e.g. that cool new backpack or lunch box), school supplies, school field trips, fundraisers, instruments, and everything else you can think of.
- Look at your budget and determine how much you can put away each month to reach your savings goal. Get the whole family involved (kids may be willing to contribute part of their allowance if it means getting a better wardrobe next year — especially if they complained about the lack of cool things you let them buy this time around!) in identifying and plugging “spending leaks.” Spending leaks are those non-essentials that nibble away at your monthly budget, like that daily $5 coffee shop stop that adds up to $1,300 each year. Other common drains: purchasing name-brand items at the grocery store when generic brands will do just as well; eating out too often; and purchasing snacks from the office vending machine. The goal isn't to cut out everything so that you feel deprived, but rather to look closely at your habitual expenditures and identify sensible ways to cut back; say make your daily coffee stop a once-weekly visit so you can save $20 each week.
- Make savings a “bill” and stick to it. Once you have decided how much you can comfortably contribute each month to your goal, make it a “bill” and pay it with the same diligence you pay your electricity bill or anything else. It is as important to pay yourself as it is to pay for the things you use in your life. Verity Credit Union has online banking options that you can use to set up an automatic payment from checking to savings each month. Many people find if they don’t have to physically make the transfer, they don’t even notice it.
Once you have transferred money into your savings account, consider it off limits! This account is earmarked for that one big purchase — don’t allow yourself to draw from it to pay for other “fun” things along the way; that will only delay advancement to your goal. Consider setting up a big poster in your house the kids can color in as you make progress — you can even make the picture look like the item you are saving for (e.g. if you are saving for a trip to Disneyland, let the kids color in a picture of Mickey Mouse). The whole family will be proud and excited when you finally reach your goal.
In addition to saving for big purchases, the “spend less” tactic is also important to use to set up a safety net account for emergencies, like an unexpected car repair or medical bill. In addition to saving up for the fun stuff, consider allocating a portion of the money you are putting aside to your emergency fund so your family can have fun and be safe.
Have questions about family financial management? Email them to editor@parentmap.com and Verity will address them in upcoming columns.
