Everyone looks forward to the special time of the year when they get a tax return or a bonus. Our mouths salivate at the thoughts of what we can do with all of that money.
But, if you’re hoping to upgrade to a new home, splurging is not the answer.
Joe Duran, author of “The Money Code” and CEO of United Capital in Newport Beach, California suggested two important questions when thinking of what to do with big breaks.
- What’s the next big thing I want to buy?
- Is spoiling myself as important as getting that next big thing?
For many reading this blog, buying a house may be the next big thing for you. You can make strides toward buying a house by saving your big breaks. Here are three tips on what to do with your big breaks to get on track toward becoming a successful homeowner.
Having a Structured Plan Will Help You Get the Most Savings
It is hard to plan ahead when you aren’t completely sure on the bonus or refund you will receive, but a general, detailed plan can go a long way toward saving for a home. Shanna Tingom, co-owner of Heritage Financial Strategies, suggests generally “…splitting [the bonus] into thirds. Save a third, spend a third and give a third away to charity or a family member.” However, she suggests people saving for a home should save more of their bonus.
A Good Emergency Fund Will Prepare You for Rainy Days
Paul Grancucci, a financial solutions advisor with Merrill Edge, advises people to have an emergency fund for three to six months in a one-income household and six to nine months in a two-income household. Being a homeowner comes with all sorts of unexpected repairs and projects that can cost a pretty penny. Adding your big breaks to your emergency fund can cushion your pocket for the future. If at all possible, you want to have a cushion for when you move into your new home. Many things will be under warranty, but you never know what unexpected expenses will surface.
Have a Little Fun
You may be thinking, “Wait, this article started by telling me NOT to splurge.” Well, that is true. Don’t go out and blow all of your money if you want to save for a house. But putting one fun purchase in your plan will ease the temptation to spend all of your bonus or tax refund. So, treat yourself to a little weekend getaway or a relatively modest purchase. Don’t go crazy, but you won’t feel so restricted in your saving efforts if you can reward yourself just a little.
Don’t think of your big breaks as gifts. They are just as important as the paychecks you earn. You wouldn’t throw away a big paycheck on riotous living. Why would you throw away your big break?
To catch up on our SAVING FOR A NEW HOME guide, read Part 1 here.