At some point in our lives, we will be faced with the opportunity to make a milestone purchase. Whether it is our first car, engagement ring, new house or dream vacation, big purchases symbolize reaching a goal, fulfilling a long-held aspiration or entering a new phase of life.
Making a milestone purchase can often cause a roller coaster ride of emotions. When thinking about buying your first car, you may be filled with excitement, but without any financial planning, making your purchase may lead to stress and unexpected challenges.
Using financial planning tactics that will benefit your financial future and well-being is an easy way to ensure your next major investment generates long-term rewards.
Start With Reflection
Thinking about the future of your investments means that you are examining your current financial state. Looking at your income, monthly expenses and how much you are putting away into savings is a great place to start.
Once you have a grasp of your current finances, consider your current budgeting tactics. Then determine how much this purchase will affect your lifestyle spending and ability to save for the future.
Weighing the wants and needs of purchases can be beneficial. While it is completely natural to buy things that you want, it is also vital that your budget can support the expense.
Spending Guidelines:
- For first-home buyers, a great rule of thumb is allocating 30 per cent of monthly gross income on housing costs like mortgage principal and interest. For car purchases, it is recommended that costs do not exceed 20 per cent of monthly gross income.
Understanding The True Cost
After grasping how much your budget can bear, it is important to take into account the true cost of your milestone purchase. While the down payment on a house takes up a majority of your savings, you also have to think about the monthly mortgage payments, maintenance costs, insurance and property tax. Overflowing an emergency savings account can be a great way to combat unexpected costs that come with the milestone payment.
Although it’s a tough pill to swallow, your finances will thank you in the long run. Having a significant grasp on the entirety of your expenses will allow you to save and spend with confidence.
Now or later?
Deciding if a milestone purchase has to happen immediately or further into the future involves prioritization. While it is ideal to save over time for a milestone purchase, life has the tendency to throw curveballs, and some milestone purchases need to be made immediately. If you find yourself searching for funds, financing options may need to be considered.
Personal Loans
Offered by lenders such as banks and credit unions, personal loans are among one of the most popular financing options. Ideal for large purchases, personal loans give you the ability to borrow a lump sum amount and make payments over time on the amount owing, interest and applicable fees.
It is important to note that lenders will do a financial analysis of your income, bank account and personal address when considering you as a loan recipient. Personal loans can be a great way to fund your purchase, but they hold a significant amount of terms and conditions. Working with a wealth professional, like Raelipskie, can help you through the process and increase your understanding of the agreement.
Types of personal loans:
- Secured Loans: Secured personal loans use an asset, such as your car, as collateral, to ensure the loan is paid off in full.
- Unsecured Loans: Unsecured personal loans do not require collateral, but if payments are not made, lenders may take legal action.
Comparing and contrasting the best rates among different lenders is recommended to ensure that you are getting the best deal. Taking out loans can be nerve-wracking, so it’s important that this process is thought through and carefully executed.
Playing The Long Game
If you do have the gift of time on your side, the best thing you can do is make a large payment with a polished savings plan.
Start by evaluating when you would like to make your payment, knowing your time frame will allow you to map out how much you can save each month without sending your finances off-kilter. After discovering your designated monthly amount, automating monthly contributions directly to your savings account will allow you to stick to your plan and remain consistent.
Timing is everything when it comes to substantial purchases. If payments can wait for a longer period of time, then they are probably worth saving for.
While milestone purchases hold great personal value, it is important to prioritize long-term savings over short-term payments. Even though getting a new car would be great, buying it should not throw off the trajectory of your retirement plan.
It is easy to get lost in the thrill of making a big purchase, but often, you lose sight of the full financial picture. Stick to your priorities and maximize the potential of your wealth by working with an advisor at RaeLipskie. Our expert team can make sure both you and your finances are confident and prepared to make your next big milestone purchase.
