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Need To Save For Something Big? Baby Step 3(b) Is For You!

Ok, so I thought I’d start today by recapping a bit. At this point you’ve taken in a ton of information, and when that happens it’s always good to assess what you’ve learned, make sure you’re applying it (Or at least starting to), and re-read if necessary. In week one, and a little of week two, you learned what you need to do to get your financial house in order before you get started on the Baby Steps. In week two, you learned about the first two Baby Steps. In week three, you learned my personal story, got a few pointers about the process, and learned Baby Step 3. If any of it is a bit fuzzy, as far as your memory of it is concerned, I’d encourage you to re-read it, as I mentioned above.

Today, we’re going to be talking about a hidden baby step. Why do I call it that? Because people ask this question all the time: “How, and when, do I save for a large purchase like a home or car in this process?” It’s a good question and I’m hoping to clear it up for you today.

Let’s start by taking a look at what you will have accomplished at this point, and what you will have ahead of you:

  1. Save $1,000 to start an emergency fund
  2. Pay off all debt using the debt snowball method
  3. Save 3 to 6 months of expenses for emergencies
  4.  Invest 15% of your household income into Roth IRAs and pre-tax retirement funds
  5. Save for your children’s college fund (If applicable)
  6. Pay off your home early (If applicable)
  7. Build wealth and give

If you look at Baby Steps 4, 5, and 6, you’ll notice that they’re not long processes like the first three steps are (Well, aside from paying your home off). For that reason, you’re going to be doing them in unison (All at once). Baby Step #3(b) also falls into that category.

So, how do I do this?

It’s pretty simple, really. First, prioritize. What are you saving for? If it’s a down payment for a home, either pause, or back off of Steps 4, and 5, depending on your level of income. Get as much money piled up as you can for that down payment, so that Baby Step #6 doesn’t take as long, and you don’t pay as much interest.

If it’s a car we’re talking about, you shouldn’t really be pausing or stopping any of 4, 5, or 6. Why? Because cars go down in value. You should be saving whatever you can in this case, but not at the expense of retirement, college savings, or getting out from under your home. And (read this several times), NEVER BUY A CAR NEW! A new car loses 19% of its value in the first year alone. 11% of that happens as soon as you drive it off the lot. OUCH! The best way to buy a car is slightly used, so save up your money, but don’t waste it on a new vehicle. Trust me!

Obviously there are other things you’ll need to save for. Stuff like the birth of a child (The medical bills are crazy!), home remodels, stuff like that. Usually, like I said above, you can either pare your lifestyle down a (Vacations, eating out, etc…), work an extra job here and there, cash flow it without any reduction anywhere, or by backing off of steps 4, 5, and 6 a bit.

The point here, is that you need to prioritize all of those things at once, because they’re all equally important. You need to be able to survive (and thrive) in retirement, provide a good education for your kids, have reliable vehicles & a safe and nice home, and also be able to live in that home free of payments. ALL IN GOOD TIME. As I stated before, this is a marathon, not a sprint.

Tomorrow we’ll start diving into Baby Steps 4, 5, and 6. I’ll give you some pointers on the how and why.


Do you have a question about how to save for something specific? Comment below!

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