Big purchases need major planning. Here’s where to start

It can be exciting to think about making a big purchase – like putting a down payment on a house, throwing your dream wedding reception, buying a new car or taking a bucket-list vacation. Less exciting: thinking about how to save up for it.

But any major expense requires major planning. Taking a methodical approach to saving for these types of events can help you reach your goals more quickly – and with less stress.

1. Estimate how much you’ll need and how long you’ll have to save

Once you have a ballpark idea of these two figures, break your savings goal into smaller, more manageable pieces. For example, if you need to save $25,000 in two years, you’ll need to save just over $1,000 per month.

Then you can make changes in your budget to set aside the necessary cash. If your goal seems impossible, you may need to reduce your target savings or extend the time horizon.

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“It’s important to be realistic,” said Jeanette Pavini, personal finance expert and author of The Joy of Saving. “If you’re living paycheck-to-paycheck, and your goal is to buy an $80,000 Mercedes, that may not be possible.”

2. Set up a separate account

By keeping the cash for this purchase apart from your day-to-day checking account or your emergency savings account, you can reduce the temptation to tap into these funds for something else.

Sometimes called a “sinking fund,” this account designated for a specific goal should be kept in a high-yield savings account, or in a certificate of deposit, depending on your time frame.

“You definitely don’t want to invest that money,” said Kerry Keihn, chief operating officer and financial advisor at Earth Equity Advisors, a sustainable investing firm. “Keep it in a low-risk option.”

3. Automate your savings

Once you’ve established your sinking fund, set up automatic deposits. Ideally, you’d tie the withdrawals to your paycheck deposits in your checking account. That way you don’t have to remember to regularly move cash into the account.

You may have to make changes to the amount you save based on what else is going on in your life. If you lose your job, for example, you might need to hit pause, while you might boost your savings after receiving a windfall or a raise.

“Be flexible,” said Vincent Birardi, a certified financial planner and wealth advisor at Halbert Hargrove. “Life will throw curveballs, so give yourself optionality in your planning and consider multiple scenarios.”

4. Don’t ignore your other financial goals

While you may be anxious to reach your goal, it’s important to build yourself a strong financial foundation before saving for big purchases that are discretionary items.

“Start with your emergency fund,” said David Chang, a contributing personal finance expert with The Ascent. “And make sure you are participating in your retirement fund, because you want the tax benefits and long-term compound growth. After that, pay down debt, and then any money left over can go into your sinking fund.”

An elderly couple walk hand-in-hand in San Antonio, Texas. (Photo by Robert Alexander/Getty Images)

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5. Avoid the temptation to tap into expensive sources

In most cases, it does not make financial sense to take money out of your 401(k) or use a high-interest credit card or personal loan to finance a large purchase. That’s because there are costs associated with accessing money that way. For example, if you take an early withdrawal on your 401(k), you may owe penalties and taxes on the money, and potentially end up less prepared for retirement.

“You don’t want to tap into your 401(k) or IRA in order to fund a big purchase, if you’re still of working age and saving,” said Robert Gilliland, managing director and senior wealth advisor with Concenture Wealth Management.

With credit cards, the cost comes in the form of high interest rates, which can significantly increase your costs over time, especially as interest rates continue to rise.