When it comes to saving for purchases, whether it’s a vehicle, a house, or something of large value, there are several factors you need to consider. The first thing you need to determine is what is it that you need? Yes, we want the nicest house on the block or the newest car on the street, but is that what you need? If you work and need a fuel efficient car to get you where you need to safely on long road trips, then the big F250 truck may not be the answer, even though it’s a lot cooler than the Toyota Camry. Once you determine what it is exactly that you need, begin looking at the difference between buying something new or maybe something that is a little bit older but still in good condition. The same goes for houses. Everyone would love to build a house, but sometimes the cost to build a brand new house can be significantly more expensive.
Next you need to determine what you can afford. No house or car is worth draining your life’s earnings. A financial advisor can help you assess your current situation on what you can or cannot afford when making large purchases. Don’t forget the tax implications such as sales tax and property taxes when buying things such as vehicles, most people make the mistake of not taking that into consideration when purchasing. Once you determine how much you can afford, the savings begins.
The other consideration you need to consider is will you need to take out a loan to make the purchase? This is where sometimes people can get themselves in trouble. There are scenarios where financing some purchases are right and when other times they are wrong. This is when a financial advisor can help guide you into making a smart financial decision.
When it comes to saving for large purchases, how you save for it depends on your time horizon. If you have less than three years to save for your purchase, then you need to hold your money into non-volatile assets such as money markets or CDs. During times like today, that’s actually pretty good. If your time horizon is more than three years then there are some more options that allow you to earn more than what cash equivalent investments can get you. After you determine what you are going to buy and how you’re going to buy it, then you need to start saving and put your money to work so your dream can become a reality.
Again, you do not have to be alone when it comes to making these financial decisions. Call our office at 417.720.4255.