Posted by Maneesh Sethi :: March 6, 2009 @ 5:49 am

So you’re planning a relatively large expense – a bicycle, a plasma TV, or even something larger like a car or a major home improvement. But the problem is that you already have other bills to pay, and there’s never enough money left at the end of the month for that purchase you have your eye on. So what can you do?

First, if you don’t already have a personal expense plan, make one for yourself. Create a monthly budget that shows your income, your expenses and bills, and a realistic amount for necessities like groceries and gas. What’s left over is your discretionary spending.

Second, open up a high-yield savings account. There’s no fee for these accounts at ING, for example, and they offer much higher interest rates than a savings account at your local bank. My ING accounts typically earn 4% interest, though since the start of the financial crisis it’s been more like 2.2%.

Third, and this is crucial, pay yourself first. It’s one of the hallmarks of personal finance wisdom. Essentially, set a part of your discretionary funds aside at the beginning of the month, right after you’ve gotten your paycheck, to save towards your goals. There’s a great post on this method here. By setting that money aside right away, you make your personal savings goals a priority over everything else, you get a psychological advantage of never seeing that money in your checking account, and you get to watch your savings grow steadily with each month. Plus, ING lets you open up multiple sub-accounts, which you can name and automatically divide your savings between them, so that you can open up a different sub-account for each savings goal.

For example: say you have $100 to save each month and you want to save $400 for a new bicycle and $1,200 for a computer. With 3% interest, if you save $30 towards the bicycle and $70 towards the computer, you can afford the bicycle in just over 13 months, and the computer in 17 months. And you’ll have earned an extra $30 in interest in that amount of time.
What strategies for saving towards a big-ticket item have worked for you?