So far we have covered saving for F.I.R.E. (10%-20%) and our Daily Living Expenses (50%).
But what about those things that aren’t day-to-day? Those items that fall into the “Need to do later” category?
Well, I’m glad you asked. Because today we are going to look into Big Ticket Items.
What’s a Big Ticket Item?
Big Ticket Items are things that you spend money on that take some time to save up.
Down payment on a house
Christmas and Birthday Gifts
Here’s The Rule for a Big Ticket Item
If you need to save more than 3 months for it, it’s a Big Ticket Item. Pure and Simple.
Want to go somewhere nice for a weekend?
Have an account for that.
Need to stash away some money for Disney with the family?
Start a different account for that.
Car starting to show it’s age?
Start a separate account for that.
You get the idea.
How Much Should You Put Towards These Accounts? 10%
That is entirely up to you. Isn’t this system great? I aim for at least 10% but it depends on what we are saving up for and how fast we want to save for it.
Personally, we have 3-5 BTI (Big Ticket Item) accounts on the go at any given time. Right now they are:
Big Trip: 2%
Repairs (a.k.a. In Case It Breaks) : 2%
Summer Vacation: 5%
Christmas and Yearly Gifts: 4%
As you can see we are doing more than 10% of our income, but that is the joy of this system. It’s adjustable to you.
Do I need to Have a Separate Account For Each Big Ticket Item?
YES! I strongly recommend that you split up the Big Ticket Items into different accounts. That way you can see them all grow.
It’s also why you want to be with a bank that doesn’t charge monthly fees. This is a great way to keep your amounts separate and watch them grow. That way you don’t end up spending the money for Grandma’s Christmas gift on your trip to Hawaii. 🙂
Remember: You can change the amounts around as you need to. It’s entirely up to you.
A Quick Warning
While you may want to have just 1 account and do the math in your head about how much you have saved for each item. I would strongly recommend against it.
This is usually a recipe for disaster.
In my experience, as you look at the 1 big amount you will use it for whatever is most urgent and that ends up wiping out the other accounts. Keeping them all separate is the best way to go.
Tonight’s homework is a simple two step process.
First, decide on how many Big Ticket Items you want to be saving up for.
Second, decide how much each month you want to be putting towards these accounts.
Don’t forget your emergency fund!
We will see you again tomorrow when we talk about, what I believe is, the most important part of the system.
Take care until then!