If you want to buy a home, most experts suggest saving at least 20% for the down payment. It’s a simple goal for a big purchase, but it’s meant to protect you financially. You can use the same concept for other purchases, too.
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Money site Financial Samurai explains the concept:
By tethering your desires, you force yourself to achieve certain financial goals before wasting money. You might just find that after spending all that time earning or pursuing a goal, you’ll lose your desire to splurge! I’ve already created a mid-life crisis investment fund for a fancy car that I doubt I’ll buy.
There are a few advantages to this strategy. First, it makes your spending more mindful. You’re not just spending impulsively — you have time to think about your purchase. Second, it helps you achieve whatever goal you’re working toward. For example, I’m terrible at negotiating. As an incentive, I once put off buying a new phone until I asked for a raise. This motivated me to get up the courage to ask. Finally, you get to enjoy your spending.
While Financial Samurai mostly discusses the rule in terms of big-ticket items, like a car, I think it works well for smaller splurges, too. I used this strategy when I was in student loan debt. If I wanted to enjoy a nice restaurant meal, for example, I used it as a reward once I paid off X amount. Those rewards can keep you from burning out on your goal, too.
For more on this strategy, head to the link below.
Easy Ways To Boost Savings And Control Spending [Financial Samurai]