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Balancing financial priorities: How to plan for a major purchase

Planning for a significant purchase or financing a major life event can have both short- and long-term financial impacts. 

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Whether you’re saving for a down payment on a new house, paying for a wedding or saving for your dream vacation, an Ameriprise financial advisor can help you prepare for a major purchase and help you adjust for the short term  — while also staying on track for long-term goals such as saving for retirement.

Learn how to navigate a major purchase and find helpful tips on how to create a plan that works for you.

In this article:

How do I get started? 5 questions to ask yourself

1. What are my financial priorities?

The first step in planning for a major purchase is understanding your larger financial picture. It can be helpful to list out your major financial goals and priorities — and when you’d like to accomplish them. This can help you to determine if it makes sense to move forward, pause or make trade-offs in other areas.

2. What’s my budget?

The next step is to understand what you can afford. Be realistic with how much liquid cash you have on hand and how much you can comfortably save and borrow. When it comes to setting a budget, consider these key steps:

  • Calculate your net income
  • Lay out your basic expenses (rent, mortgage, food, electricity, etc.)
  • Identify additional expenses (non-essential expenses like leisure activities)
  • Outline savings goals
  • Calculate the difference between what you make and what you plan to spend vs. save. This difference will give you an idea of what your budget will be for any upcoming expenses — big or small. 

3. How much will the purchase cost?

Determining the total price tag of a large purchase often requires extensive research. Talk to trusted individuals for advice, search the internet and take time to understand all costs associated with your purchase.

4. What’s my timeline? 

Is this something you want or need to do right away, or do you have time to prepare? The more time you have to save and plan, the better. 

5. How will I fund the purchase?

You’ve decided to move forward, outlined your budget and considered all associated costs. Next, think about how you will fund your purchase.  

  • Checking or savings. If you have enough funds available in a checking or savings account, this could be a good option to pay for your purchase. 
  • Credit cards. If you’re considering using credit, establish a plan to pay it off as soon as you’re able — and keep your credit limit in mind.
  • Financing. A personal loan through your bank, credit union or other financial institution can be a helpful option and may offer lower interest rates than a credit card. 
  • Tap into home equity. This may be an appealing choice if you have built up equity in your home. Whether you choose a home equity line of credit, cash-out refinance or some combination of the two, a trusted mortgage professional — in partnership with your financial advisor — can help you determine if this is an option for you. 
  • Margin loan.  With a margin loan, you can use a portion of your non-retirement investment portfolio as collateral for cost-effective liquidity. Your Ameriprise financial advisor will help you understand the advantages, limitations and risks of securities-based lending.

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What are the short- and long-term financial implications?

When making a major purchase, there can be both short- and long-term implications.

The impact on short-term goals and current assets

In the short-term, paying for a big purchase upfront may leave you with less cash on hand. If you haven’t saved or planned accordingly, it’s possible this could be challenging to navigate  and may result in sacrificing some of your usual expenses. 

For instance, if you take a big trip without planning ahead, are you making financial sacrifices elsewhere? What does this mean for your longer-term goals such as retirement? Big purchases have their risks and rewards — consider all aspects of the process with your financial advisor as you plan your approach.

The impact on long-term goals and financial stability over time

Committing to a long-term payment plan rather than paying the majority (or all) of the cost upfront could have lasting impacts on your financial picture — such as impacting how much you can consistently save for retirement or other long-term goals.

However, in some cases large purchases that require a long-term payment plan can be worth it. For example, while remodeling your home may result in a tighter budget for a period of time, a major remodel could add tremendous value to your home — meaning a potentially higher sales price in the future. 

If you choose to pull from accounts such as an annuity, 401(k) or IRA to fund your purchase, you may be faced with additional long-term consequences. While it is possible to take early withdrawals, these often come with penalties and fees. Make sure that the long-term effects of pulling from these investments and savings accounts don’t outweigh the benefits of your purchase. Your Ameriprise financial advisor will help you understand these possible implications as you’re evaluating your options.

How an Ameriprise financial advisor can help

When planning for a major purchase, your financial advisor will take the time to learn what’s most important to you and provide advice specific to your goals and priorities. Learn more about what a financial advisor does and how they can help you. 

Connect with an Ameriprise financial advisor today to help you plan for big purchases and stay on the path to a confident retirement.
 

Connect with an Ameriprise financial advisor to help you create a plan to balance your financial priorities.

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This information is being provided only as a general source of information and is not a solicitation to buy or sell any securities, accounts or strategies mentioned.  The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as a recommendation or advice designed to meet the particular needs of an individual investor.  Please seek the advice of a financial advisor regarding your particular financial situation.
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