Budgeting, Personal Finance, Saving Money, Shopping

How to Opportunity Budget

not missing the deal

When setting up and running a household budget, the most important thing is that it works for you and your household. There are many good systems and practices that people may recommend, but the ultimate test of such a system is how and if it actually works in your personal finances.

My husband and I have developed a system of saving for large purchases that may be different from the average family’s way, but it works for us. The general advice I’ve heard for this is that once you figure out the purchase you want to make and figure out how much it will cost, then you should begin saving for that purchase and only once you have enough money for it, should you actually purchase that item. Sounds like a pretty simple idea, but it doesn’t work for me because once I have the money for the item, I might have missed a big sale on it and now have to save for even longer to make up the extra it will cost.

Instead of finding an item we want to buy and then saving up for it, we do what I like to call “opportunity budgeting.” This is where we set aside money each month to go into our “spending-savings” account, which is completely separate from our emergency savings account. I track the money we put into each account every payday and distinguish between the emergency savings that we don’t touch, and the spending-savings that we can touch whenever we want. That money is money we save simply to spend. So before even having our eye on any big purchase, we put money into that account so then when we decide we want to buy a large purchase, we already have the money.

Now this is not money we spend lightly and on a whim. I’m not the kind of person to walk past a big screen tv and say “we should buy that with the money we have in savings.” I don’t make fast decisions on large purchases because I like to research ahead of time. We build up our spending-savings account while keeping a list of big purchases we would like to make in the near future. The priority on that list shifts as our needs do as well as when prices rise and fall.

Here’s a case in point for a recent large purchase we made from our spending-savings fund. We are planning to remodel our kitchen sometime in the next 6 months or so. We’re still gathering ideas about cabinets, countertops, lighting etc., but one thing we have already decided on are the appliances we want.

We’re going for stainless steel appliances with nice features, but by no means top of the line. We picked out a side by side refrigerator, a glass top range, an over the range microwave, and a dishwasher. Sears seemed to have the cheapest price on these so I started tracking the prices. I made a spreadsheet of the appliances we wanted and noted the regular price and the best sale prices I’ve seen.

Every time Sears (or any other appliance store) had a sale I would compare the sale prices to the previous sale prices I’d seen and adjust accordingly. My goal was that when a certain sale price dipped way below previous sale prices, then we could take advantage of that and buy them.

Last week Sears had a sale of 20% off all appliances, plus an additional 10% for one evening only for a VIP friends and family event (which included anyone who got their e-mail or saw the ad in their store). For one evening, we had the chance to get $2000 worth of appliances for only $1400. We were able to jump at this deal and purchase our appliances for the right price because we had the money in savings already.

In addition, the store was offering no interest and no payments for 1 year when you use your Sears card so we took advantage of this as well. We did however take that money out of our spending-saving account and moved it to our other savings account so we would still have that money set aside to pay off the Sears card when the time came. (We would have put it into a 1 year CD, but unfortunately with the low interest rates right now, the rate for a 1 year CD with our bank is the same as our high interest online savings account so we just put it in there instead.)

As we’ve told friends and family how much we were able to purchase our appliances for, they are amazed at the deal we got. I know we were able to take advantage of this great opportunity because that’s exactly what we budgeted for — a great opportunity. Now this method won’t work if you try to take advantage of EVERY opportunity out there — especially when it goes beyond your budget and how much you’ve saved so far.

There has to be a balance. I actually wanted to purchase these same appliances when they went on sale almost a year ago, but we weren’t even close to remodeling our kitchen at that point. This time around we are only a few months away from the remodel so the purchase actually made a lot of sense for us. If I had opted to wait this time for the next sale, it could have either pushed our remodel timeframe back, or forced me to purchase the appliances at a lesser savings.

We also try to keep a certain amount of money in our spending-saving fund just so we never run it dry. If it gets low we often hold back on purchases until we can stock it up again. More than anything this helps us mentally and having this separate savings fund surprisingly does help us narrow and limit our purchases.

When we see a large item we want to buy, instead of thinking that we can’t afford it, we know we can, but are then forced to weigh our desire for this item with our desire for another item we’ve been wanting to buy. This makes us realize that we’re not suffering because “we can’t afford it” but rather we are being disciplined and choosing to buy instead what we really want/need instead of just what we think we want/need. I think it really makes a difference.

There actually might be a lot more people out there who budget like this and I’m just not aware. Or maybe there are some people who can benefit from this shift in thinking. Either way I hope you can find a way to seize the opportunity of a lower price on an item you want, without putting your financial situation in danger.

Image courtesy of hugovk

7 thoughts on “How to Opportunity Budget

  1. I do this exact same thing, but I call it my long-term fun savings. Mine usually goes toward vacations but sometimes towards electronics or furniture.

    However, when I decided I wanted to remodel my house, I knew that this budget category wouldn’t have enough money in it any time soon, so I started a new category for that.

    Thanks for your great hints about buying appliances, too. I’ll be looking for a dishwasher soon, and I will copy your plan, collecting data for a while so I can recognize a really awesome price when I see it.

  2. I do something simiiar to you except that I break down my different savings into certain categories as the above poster. I have a savings for electronics because eventually one of my conponents is going to go. I also have one for furniture replacement, house maintenance, vacations, holiday savings, gift giving and any particular savings need that comes up.

    I do like your idea of the what I would call a super fund where you will have enough money in case a good sale comes along.

  3. We do something similar, and it allowed us to save 35 percent off the cost of new energy star replacement windows for the entire house. That saved us a lot!

  4. This is otherwise known as a Freedom Account. I use a Reward Checking Account and divide it into categories – furnishings, appliances, electronics, etc. I learned of the Freedom Account from Mary Hunt’s “Debt-Proof Living.”

    The reason why I choose a reward checking account is so I can also earn interest each month. A freedom account is a sure-fire way to keep oneself out of debt, too. If you want to use a rewards credit card for cash back, then just write a check from the account where the money is allocated to pay off the card.

    One definite method to the madness.

  5. I do the same thing. My husband and I learned very quickly when we got married that we have extremely different methods to managing our money. We’ve always maintained two savings accounts, one is the secure savings account that we don’t touch and build on, the other is an account that dips up and down frequently. I’m a saver, and my husband is a spender. He knows that if there’s money in the spending savings account that he can buy that new gadget or gizmo without my panicking. It’s worked out great for us and saved us from many arguments I’m sure!

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