Money Moves for the New Year: Saving Up for a Big Purchase
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Here's your Money Briefing for Thursday, December 26th. I'm J.R. Whalen for The Wall Street Journal. Welcome to the third episode of our series, Money Moves for the New Year. As we move closer to 2025, we're answering your questions about not only setting money goals for the next 12 months, but keeping them. Today, we're talking about saving for a big purchase. It could be a house, a family vacation, maybe a new car. For me, it was the metallic blue two-door Porsche Boxster convertible I bought in 2013. I had my previous car for way too long, decided to save and make some adjustments in my spending to meet my resolution of buying the car. Your Money Briefing listener and small business owner, Sally Doty, is ready to splurge on a project that she and her husband have wanted to take on for years, some home renovations.
This is your traditional Midwestern split-level home where you walk in, you got two directions to go, and there's not much of an entryway. Not a huge home by any means, but definitely lots of outdoor space to enjoy around the home. So that's where the external projects are coming into play.
She's 34 years old and lives in Pierre, South Dakota with her husband and three dogs. They love hosting family and friends, so a new outdoor deck and siding is on their list.
We're in our mid 30s now. I think both of us are in the position that we've saved. We've kind of like to make a list every year of some things we would like to get done. And then you just cross those off and kind of keep moving along as we go. But we've got a big year in 2025 for projects. As far as the biggest question, sometimes you always ask, are the repairs worth it? We're living in our home for us.
How did the episode introduce saving for a major purchase and listener Sally's renovation plans?
We want to enjoy this for us. We're not living in it for the next person. But we do have those conversations as to what would happen in this case scenario. And both being small business owners, you just hope you have good months ahead of you.
Getting the money together for a home renovation project is a huge undertaking. So when should you start budgeting? And how can you stay on track to have enough money put away? I asked Mark Reyes, a certified financial planner. Mark, what are the first steps Sally can take to manage this project?
Well, with any major expense or project, you'll want to make sure, first of all, that you're financially healthy to take it on. For example, if you have a lot of high interest credit card debt charging 30% APR, you'll want to tackle that debt before taking on new renovations. And same goes on with an emergency fund, which I recommend having at least three to six months worth of expenses saved up separate than the house project. Without a solid emergency fund, you put yourself at risk into falling into debt. And once you understand the price of the renovation and maybe find some financing for it, you want to make sure that you have enough free cash flow in your budget to make those monthly payments on top of your normal expenses.
What you wouldn't want to do is use a lot of your monthly budget to finance the renovation and then have to put your essentials like groceries, insurance, and all living expenses on credit cards, which you may accumulate credit card debt.
When someone is saving for a purchase that's, say, over $10,000, how do you suggest that they create a budget for that?
Typically with budgets, I recommend the 50-20-30 budget where 50% of your income is dedicated towards essential spending like groceries, insurance, housing payments, 30%. be dedicated towards everything else but 20 would go towards saving and investing so if you can regularly afford to save 20 of your net income per month that's a good sign that you're financially healthy enough to save towards a larger project maybe chip away 750 bucks or a thousand dollars per month with a one-year timeline to save towards this larger project so about one year out you recommend people start saving
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:00–2:12
2
How did the episode introduce saving for a major purchase and listener Sally's renovation plans?
2:12–7:52
3
Who is Sally Doty and what home projects does her family want to fund?
7:52–13:57
4
When should you assess financial health before starting a home renovation?
13:57–14:50
Speakers
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