Making a large purchase is intimidating but there are a few ways to make it easier. I am a believer in taking on debt if it’s accretive in nature, meaning it’s helping my net worth grow. Making a big purchase that is erosive to your net worth is buying a brand new car you can’t afford. Buy a used reliable car and don’t get sidetracked by shiny things. 

• For Example: I live in Boulder, CO so I’ll break this down based on where I live. If my income is $75,000 then after taxes my take home pay for the year is $56,680. Let’s say rent is $1,700 ($20,400 annually). I have $36,280 remaining. Groceries = $3,600 ($300 a month). $32,680 remaining. Savings goal is 10% which is $7,500 leaving me $25,180 if I contributed to my Traditional 401(k). Utilities is another $150 a month which is $1,800 leaving me $23,380. 

*If you have student debt, the income method to pay it off would mean 10% ($7,500) of your income goes to paying off your loan leaving you with $15,880. 

There isn’t much room for error if I want to save to make a major purchase. So you need to prioritize. Understanding what you want is a great place to begin. Let’s say you’re planning on staying in the area for at least 5 years. Well in that case, maybe you can buy an apartment for $250,000 (read my article on buying a home to learn tips and tricks). Since you don’t need 20% down especially if you’re purchasing a home, accretive debt, then you can actually get away with only putting down 5-10% and pay PMI upfront. So instead of needing $50,000 for 20% down you need $12,500 – $25,000 depending on your credit score and work history. 

Well saving 12k to 25k is way easier than saving $50,000 and you can start building equity in a home before throwing a lot of money away into rent. If you were to get a roommate you could save even more and get to your goal faster. But with the goal being saving $15,000, you need to save for 5 years $2,556.85 earning 8% to get to your down payment. That means by age 26 you can start building equity, focus on earning more, and begin building your foundation. Automate your savings to save roughly $215 a month or $106.50 every paycheck and you’ll be on your way! 

As you get within 1-2 years of buying that apartment your salary will most likely have increased and you’ll want to reduce your investment risk so as to not jeopardize your nest egg you’ll need to buy your home. So increase your savings accordingly.