Savings Strategy: Make payments to yourself!

Saving money up for a large purchase can be a difficult task. For some it is daunting to need to save up $5,000 or even $10,000 to purchase a car or other big ticket item. I find the best way is to "make payments to yourself". Let me explain.

Let's say your goal is to save up to buy a newer used car. Your current car is mechanically sound and will be for the next few years. The time to start is now. Pretend you are buying the car today and using a loan. Instead of borrowing money and paying back start today by putting the equivalent of the monthly payment in a savings account.

Assume your budget allows $300 per month for a "car payment." If you start putting $300 per month into savings you will have $10,800 in 3 years plus interest. Once you buy the car you want you can use this savings and have no payment! Instead of paying interest you earned it. Sounds much better right? Simply put whatever your budget allows in savings for the goal and you will get there quickly!

Making payments to yourself not only saves you hundreds in interest it also builds good habits. You can apply this strategy to any purchase such as a home down payment, large renovation project, starting a business, etc. Always be sure to have your emergency fund completely funded before saving for other goals. This prevents you from having to tap the savings for the goal in a time of need.

For those of us who are worried we will spend the money elsewhere the best bet is to have the savings account at a different bank than your main checking account. If you have to take extra steps to move the money you will think twice. I do this myself and it works very well!