Is Saving up Better Than Buying Right Away?

When we want to buy certain items, we may find that we do not have the money. For example, we might find that if we want to buy a new car, we do not have the money available to be able to afford it. This means that we will have to find the money from somewhere else. It could be that we could wait and save up for it or that we could borrow the money. There are pros and cons to each and it is worth thinking about them so that you can decide which will be the best for you.

Cost of Loan

It is a good idea to start by thinking about the cost of borrowing. If you take out a loan, there will be interest to pay and there might be other fees as well. This means that you will have to pay more than if you did not borrow money. The key thing is to think about whether you think that the loan will give you good value for money compared with the option of using savings. It is not always easy to calculate the cost of a loan but you should be able to get a good idea from the lender but also bear in mind that  if you miss a repayment then you will get charged extra so bear this in mind when calculating the cost.

Lost Savings Interest

If you have money already saved up, then you may be reluctant to spend it because you are worried about the loss of interest. Savings accounts do pay a little bit of interest and that can feel good, that you are getting some money. However, borrowing is usually significantly dearer and so by using savings, even considering the lost interest, it will generally be cheaper. You can work this out though and then you will be able to decide which will be the most cost effective solution for you.

Item Price Goes up

If you decide to wait and save up for the item, there is always a risk that the price might go up. This si because of inflation and prices do generally increase over time. However, it is likely that the price will not go up more than you would have to pay out if you took out a loan. However, you could calculate this and estimate how much the price would have to go up to make it worthwhile borrowing the money and buying right away compared to waiting and saving up. You could be surprised at how little extra you will have to pay if prices rise, compared to if you get a loan.

Item no Longer for Sale

It is always a risk that if you delay buying something, that it could sell out or no longer be made. Then you will not be able to get it at all. However, the risk will depend on the specific item. Some items are updated every so often and so it may be replaced with something better, which may not be a bad thing. You may also find that items might be available second hand if they stop being sold new and so this could be helpful as well. However, some things might become collectible and then the price will really go up and that could be tricky to cope with. Consider the item and which scenario is more likely. Also consider whether there are other similar items that you could buy which might provide the same function even if they are not the exact brand that you were looking for.

How Much Money Should I Have Saved Up?

If you have made the decision that it would be good to save up some money or if you do already have some savings, you may wonder how much money you should actually aim to have saved up. It is not an easy decision really as people will have different opinions on this. There are different approaches as well and it can be worth thinking about a few of these so that you will be able to make a decision more easily.

How Much do I Need?

The first thing that many people will focus on is how much money they need to save up. This is because they will want to think about whether they will have enough. You will need to think about what the purpose of saving is for you. If it is to have some money for emergencies then it might need to be enough to cover a month’s rent, to replace a broken washing machine or to have a car repair. Consider costs of emergencies like this and how much you will therefore need. It can be wise to think about the fact that you may need to replace several things at once or you may not have time to replenish the savings very quickly after paying out so it could be good to have a bit extra.

Some people want to have a lot more money. Some will be saving for retirement, for a deposit on house purchase or in case they lose their job. These amounts will be bigger but it is still possible to come up with some figures. For example, you can work out how much you need for retirement by calculating what you pay out at the moment and thinking about whether that will change. You should be able to find out how much pension you will be entitled to from the government website and your pension provider. This will help you to calculate how much more money you might need. Saving for a deposit takes a little guesswork because you will not be exactly sure how much the house you are buying will cost, but it is a good idea to make sure that you have more than enough by looking at house prices on homes you are interested in and finding out how much lenders will expect you to provide by way of a percentage. For losing a job, it could be worth putting by a good few months worth of money. You may be able to get benefits, but it can take time to get those organised and they will not be very much. Therefore, it can be a good idea to have some money available to use just in case.

How Much Can I Afford to Save?

You will also need to contemplate how much you can afford to save. This will obviously be determined by how much you earn and how much you spend. If you always have some money left at the end of the month then this can easily be saved. If you do not, then you might have to think about whether you will be able to find a way to get some extra money. It could be that you will have to cut back on spending, try to pay less for what you buy or earn more money. It is wise to think about some ways that you can find some extra money so that you can pop some into your savings account. It can be a good idea to look back at some bank statements to help you with this.