Can you buy a house, car or a boat with cash? What about a college education or an entire business? With some planning and strategy, paying cash for these items is entirely possible. Here is are some tips on how to pay cash for big ticket items:
1) Set a Budget
Set the budget and you will know how much you need for said item. This seems like a no brainer, but trust me, it deserves mentioning. When you go into a car dealership ready to finance a car, the salesman always finds a way to upsell you. Not only are you paying more for the car due to financing, but you are also paying the “sucker price” for the upgraded model you can afford via monthly payments. If you come in with 10 Gs, cash, you will know what you can buy with no negotiation. Set your “out the door” price and stick with it.
2) Get a Discount
Could you get by with a smaller house? An older car? Can you buy a used boat? What about a foreclosure? Can you purchase shares of the business at a discount? These are all good questions to ask so that you get the most value for your hard-earned money. Spending more won’t always equal more happiness. Figure out the “must haves” and “nice to haves” early on.
3) Decide When You’ll Need It
Sometimes this is easy and sometimes not so much. If I were to do it all again, I’d put away $1,000 a month in a mutual fund at 25 and cash out on my fat $150,000 or so return at 35 to get a house or some other income producing asset (ice cream truck?) with no debt. If you are 22 and know that by the age of 32 you want to start a family and get a home, that’s a good start. If you are driving a hooptie on its last leg, I hope you’ve been saving up for the last 2 years for your new car. Other things are more flexible, like your lake house or Subway franchise. Knowing the price tag and the time you have to save will dictate your savings plan.
4) Save & Invest Consistently
By using a nifty Time Value of Money calculator, you can see how much you will need put away monthly. For example, if you want to save $100,000 for your newborn to go to college 18 years from now, you’d put away around $290 per month (assuming a 5% rate of return.) The same formula works for a house or car. Make sure you talk with a financial planner or advisor in the process so that you can leverage your savings with good investments. To save up $100,000 without making use of financial instruments like CDs or securities would take FOREVER! Take advantage of your access to financial products that will add “umph” to your savings plans. For smaller items under $5,000, you might be able build up some cash in a simple savings account.(We like Ally.com because they have almost no fees and have a decent interest rate). For sub $5k purchases, still create a line item in the budget to save monthly and pay your cash when the time comes to buy.
5) Find Creative Ways to Add to Your Savings
We live in the glorious internet age where you can make money on everything from renting out your home and/or car to completing surveys online. You can make extra money on so many side hustles, that it’s almost impossible to be poor these days. My go to is Craigslist. I also like saving up loose coins and adding them to my pile-o-money when I have a savings goal. Don’t forget about clever smartphone apps that “sneak” money into saving accounts for you like Digit and Acorns. Then, there are the ways to cut expenses. Between trying to add more income and minimizing expenses, you are sure to reach your savings goals sooner than later.
With some planning and discipline, you can buy any big ticket item without using debt. Do you think you could ever make a large purchase without debt? Now’s a good time to start to start trying!