My current computer is nearing the end of its natural life cycle. I have had it for several years and done a few minor upgrades to it, but the monitor (one of the first reasonably priced 15″ flat panels) has had several vertical lines appear in it in the last few months and the motherboard is starting to fail in the main unit (occasional failure of peripheral devices and a couple completely random reboots). Although I could easily live without it, my computer is essential for communicating with colleagues, managing my money, and facilitating my burgeoning writing career. It has had a very long life and is still able to run the latest software due to my policy of spending well on a computer so that it is reliable for a long period of time. I also tend to do things on my computer that are above and beyond the run-of-the-mill, such as video editing. Thus, for my next purchase, I am budgeting $3,000.
So, how does a thrifty saver deal with such purchases? I have developed a series of methods for paying for such non-essential but important hefty purchases. Using this process, I am hoping to be able to afford a computer upgrade in five months.
First, I stick to my budget and don’t move on the purchase until I have enough cash to cover the purchase. I have determined that $3,000 is the current threshold for spending on a machine that will have a long and secure lifetime, so I will not make a move until I have $3,000 in savings. It also gives me a savings goal to work toward. In the past, I would have bought the computer now and put the balance on my credit card to pay off over time, but I have learned from that mistake. Now, I will still make the purchase on my credit card, but I will pay off the entire balance using my savings, thus earning me some significant bonuses.
Second, I have a separate savings account solely for such purposes. This account is at HSBC Direct and it earns a very competitive interest rate – in fact, it’s the highest (for the moment) among my savings accounts. This enables me to keep my savings for such purchases clearly distinct from the rest of my finances, yet also quite available for when the time comes.
Third, I withdraw small but frequent amounts into this account. Currently, the amount is $25 a week. This amounts to a steady increase of $100 a month towards my goal. Without any additional input, it will take a while to reach my goal, but the small deductions fit easily into my weekly budget. Plus, once I move on the current purchase, I will continue to save $25 each week for just such purchases – items like a deep freezer (one of our intended early purchases once we move into our house).
Fourth, I am splitting “extra” income between this savings account and my normal savings and investment. I am currently selling off some items from the closet and bookshelf that I don’t use any more, and I also occasionally provide consultation for various groups. Also, any income from The Simple Dollar falls into this category. The income from this is being split 50-50 between my computer savings and my regular savings and investments, enabling me to move quicker towards my goal.
This philosophy enables me to move quite steadily towards larger purchases that I intend to make. Plus, sticking to the plan even when there are no such purchases in the foreseeable future enables me to be prepared for things that might come up, such as an appliance dying suddenly. I call it my “large item fund.”