Plan for the Big Expenses

Big Expenses

The big expenses in life need to be planned for. Whether you are looking to buy a car, home, or have children, you want to budget for these expenses before you take the plunge.
The biggest mistake many people make is jumping into an expensive purchase, without doing their due diligence. For example, if someone knew their car needed $1,000 in repairs and the expense was worth it, but they didn’t have $1,000 right then—what is the best option?

The biggest mistake many people make is jumping into an expensive purchase, without doing their due diligence. For example, if someone knew their car needed $1,000 in repairs and the expense was worth it, but they didn’t have $1,000 right then—what is the best option?

  1. Is the best option taking out a loan for a new car that would eventually cost $12,000?


  1. Is the best option finding a lender willing to provide $1,000 in a secured loan, using the collateral of the current car to get the repairs done?

Option B is the least expensive option. Yes, the person is hindered for a time because they need the car for work and other driving needs. However, if it is possible to get the loan for $1,000, then the person can pay it off much earlier, with the money they would have used for a new car loan.

Big expenses may come up as an emergency; however, how you handle the emergency is the difference between a possible bankruptcy and surviving through a tough financial time. If you go with your knee jerk reaction and correct the problem of “now” you could be making a financial mistake that warps your budget for years.

When it comes to the big expenses, you want to always assess the situation. Look at all possible solutions and if you can’t see them have someone else examine your situation. There is nothing wrong with getting help in emergent situations, when the expense is going to be more than you can afford or should allocate to that expense.

If the expense is non-emergent, such as buying a new car because you are prepared to do so or you have saved up for a motorcycle, boat, or special trip, then you still need to conduct due diligence. You still need to research what you wish to purchase and budget for it, by saving the money.

Something that we never consider with big purchases is how we will feel when we can truly afford it.

Buyer’s Remorse versus Elation

When you purchase something you cannot truly afford, you have buyer’s remorse. You regret the purchase, wonder if you can take it back, and eventually settle into paying for it on a credit card. A person that waits may change their mind, find a better product, and know they have the money for the purchase. In the end they feel elation from making the purchase with the money they saved up, knowing they can afford it.

Chances are you would prefer not to feel buyer’s remorse or the embarrassment that comes from returning a large ticket item because you could not afford it.

You might not feel buyer’s remorse years down the road, depending on what you purchased, even if you couldn’t afford it and things were tight. It depends on the situation. For example, say your parent was diagnosed with a terminal illness and they always wanted a large screen TV. You would probably regret not getting the TV because you can’t afford it versus spending the money on a credit card to make their last years a little better.

As always you have to assess the situation, the need versus want, and determine if what you are buying is something you won’t change your mind about in a year, two years, or three years.

What if you want to buy a motorcycle in 2016, but in 2019 when you can afford it, you have decided that a motorcycle doesn’t fit your life? Then you didn’t make the purchase and have the savings for something that does fit your life. Yes, you could buy it, sell it, and recoup some costs, but if you are going to sell it in six months, a year, or three without using it, then you wasted money.


Children are expensive, but the rewards are well worth having children. But, you also have a responsibility to those children. You have the responsibility of providing a safe, consistent life. A life that is filled with anger and worry, particularly over money, is not going to make your children feel secure.

If at all possible, plan for children. Determine the medical expenses of the pregnancy, labor and delivery and start saving up. You should be able to get an approximation of costs. You should also start a savings account for your child before they are even born. This account is for the expenses you will face, including college.

Putting $100 in a savings account for five years can provide you with $6,000. This is a good start and it can grow with the right investments. A Roth IRA is a good savings account to set up for children because you can build it, without touching it, gaining interest, and making your money work for you. In the end, you will have money for certain child care expenses or you can save it for college.

Real Estate

After 2007 and the following years of recession, it may not seem like real estate is the best way to invest your hard earned income. But, it is simply not true. Real estate is a tangible expense. It is something you live in and gain equity from versus renting. Renting is giving someone else money to live comfortably. You never get a return on renting. The money is just gone, poof, never to be seen again.

As you pay your mortgage, you lower it each month, and when you decide to sell your home, you recoup your losses, as well as potentially earn a tidy profit from the sale.

A mortgage is one of the best loans to have, if you need to have one. It is something that will be repaid if you sell the property and if you do not, then you have equity. Equity remains in a home, as long as the house is kept up and updated. Equity is the value your home is worth minus any mortgage you owe on it. In 30 years, your home can increase and decrease in value, but as long as it remains above the price you bought it at, you can recoup the money you spent on the home.

Ideally, you would want to take the money you make and save up, using investments, savings accounts, and Roth IRAs to grow your savings until you can buy a home without a mortgage. This is rarely an option today, with the rising housing prices.

Another option to get money for a home purchase, for a refinance (to get a lower interest rate) or make that addition to your present home that you’ve been talking about for a long time. Your annuity or structured settlement can be sold for cash to one of the structured settlement companies recommended here. Your house is where your family spends most of their time. Make it your home and a place your kids will want to keep coming back to after they move out.

It isn’t like getting a loan where you go to a bank, fill out a few forms and have your credit checked. This is a little more detailed. You will have to fill out forms, but you will also have to attend a court hearing where a judge will rule whether or not you should cash out your structured settlement. You see, since these are monthly payments, the court wants to make sure you are mentally sound and have good judgement that you won’t just blow the money on a weekend trip to Vegas.

Do your research and shop for a house within your budget and a mortgage with the best interest rate.

Tasks for this Exercise

  • Make a list of your life goals: children, a house, vacations you want to take, big ticket items, etc.
  • Determine the priority of this list. What matters most for you to have?
  • Sit down and determine the amount of money you need to save to realize the top goal on the list. If it is a house, you generally need 20% as a down payment of the purchase price.
  • Be realistic in what you can afford over a period of time. If you are adding a mortgage to your budget, can you support the monthly payment, not just the down payment?
  • Are there added expenses to the big ticket item you wish to have? A house requires maintenance, cleaning, new appliances, roof, and other things over the years.

As always conduct your research, determine the real costs behind the items you wish to buy or the goals you want to reach that require money. Once you have assessed the full picture, determine realistically how long it will take based on the budget you will create, to get what you desire.…

Why You Should Revisit your W-2 Form

W-2 Form

You have a dream, a goal, correct? Perhaps you want to buy a motorcycle, taking a once in a lifetime vacation? There are ways to make this happen with an appropriate budget. A part of the method is to save on your recurring expenses. Another option is to revisit your W-2 form and make it highly favorable to you at tax time.
This is particularly helpful for anyone who has a business or works as a self-employed freelancer, and has a part-time job. Your W-2 form can ensure that you do not owe taxes at the end of the year, and instead get a refund. It is like a checks and balances system. You check that you want taxes withheld and at the end of the year, you get money back. For a lot of people, it is irritating to give the government more money than necessary, but there is one reason to do so. You have it taken out, so you are not tempted to spend that money.

The government is going to withhold a certain amount of taxes each paycheck. The amount is based on how you fill out the form. If you claim 0, then you get more taxes taken out than if you claim 1, claim children, or other deductions that you can claim. Unfortunately, you can only claim 0 if you are single or if you are not the parent claiming children. If you have children, then you have to claim them; especially, if you file a joint tax return.

IRS. gov

The IRS website is a beautiful tool. It will tell you what you may owe in taxes based on your income and deductions. The more deductions you have, the less you will need to pay in taxes. Using the website can help you budget for tax season and ensure you have enough taken out of your check.

For example, if you are self-employed, you can determine how much to send in estimated tax payments to cover your taxes. If you have two jobs, where one is a part-time position that uses a W-2, you can have more funds taken out to cover your self-employment tax.

Beyond claiming 0 or any dependents, there is a little box in the second half of the W-2 form that asks if there is an amount you want withheld from your check, as additional taxes. You can have any amount withheld.

A reason to consider this is to save up for your holiday. If you expect a refund check, then you can plan a holiday with that money. You won’t earn interest on it, like in a savings account, but you also have it taken out before you even remember the money exists.

It is also a way to cover you, if your deductions are not the same from year to year. You might have a deduction for a mortgage this year, but next year you sold the home, gained equity, which is considered income, and now you owe more in taxes than usual.

Sometimes planning for taxes can save you in the end. You don’t end up having to come up with a large payment or worse setting up a payment agreement, where you have to pay a certain amount each month.

Another helpful concept with assessing your W-2 is gaining peace of mind. Those who don’t have to worry about possibly paying taxes will be able to sleep better throughout the year, as well as during tax season.

Tasks for this Chapter

  • Assess your projected tax payment based on deductions and income.
  • Determine if you have the funds to have more taxes withheld than are currently taken out of your check.
  • You do have to assess where you can save in other areas and then see if you can have more withheld. If it will be too tight because you need every last penny, without having anywhere you can cut expenses, then don’t change your withholding amounts.