Are you dreaming of buying a house, a car, or planning for a wedding? Whatever your big ticket item may be, it’s important to consider the best way to save for it. With careful planning and a disciplined approach, you can achieve your savings goals and make your big purchase a reality.

Timeline For Purchase
When it comes to deciding whether to keep your savings in cash or invest, the timeline for your purchase is a crucial factor.

As a general rule, if you need the money in two years or less, it is best to keep it in cash. While investing may be a good option in the long run, anything can happen in the short term. For instance, investing $100,000 in a mix of stocks and bonds at the start of last year would be worth $80,000 – $85,000 today.

Although keeping savings in cash may not provide high returns, it’s the lowest risk way to save for a large purchase. It guarantees that your money is available when you need it, and can prevent potential losses from short-term market fluctuations.

For longer-term goals, investing your savings may be a better option, as it has the potential to grow your money above the inflation rate. Historically, the longer you invest in stocks, the higher probability of positive returns.

Probability of Positive Returns

Where to Save
If you’re planning to make purchases in the near future, it’s best to save your money in a highly liquid account such as your checking or savings account. This option is typically the most straightforward because you can easily access your funds. Additionally, having separate accounts for daily expenses and long-term savings can help you maintain focus on your financial goals and minimize the temptation to spend on non-essential items.

To prepare for purchases down the line, consider saving in a taxable brokerage account. Unlike retirement accounts, there are no restrictions on how much you save or withdraw, providing more flexibility.

How to Save
Automating your savings is an effective strategy to make your saving efforts hassle-free and consistent. With automated transfers, you can easily move a portion of your income from your checking account to your savings with ease.

This approach ensures that you are making progress towards your financial goals without even realizing it. By setting up an automated savings plan, you are creating a disciplined savings habit that will help you achieve your long-term goals.

Bottom Line
The length of time you have to save should help determine how you save for it. Cash is king for short-term goals, while investing is a good option for long-term goals. With these tips in mind, you can achieve your savings goals and make your big purchase a reality.

George Maroudas
Twitter @ChicagoAdvisor

Disclaimers and Sources:
Please consult your financial advisor regarding your specific situation. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. We suggest speaking with your financial professional about your situation prior to investing.