Creating A Financial Timeline
The goal of the financial timeline is to plan for future major purchases.
I define a major purchase as any item costing more than $1000.
My financial timeline focuses on purchases to be made in the next 5 years.
I create a list of items that I plan to purchase. I am careful to consider items that might need replacing, such as the dishwasher or refrigerator, larger items like a newer automobile or lawnmower, and convenience items like a new laptop or even a pool for the backyard.
I estimate the cost of each item. This is, at best, an inexact science. I want to be sure that when the time comes to make a purchase, I have saved enough to actually the afford the item that I want, so I usually over-estimate the actual cost, just to be on the safe side.
Using a calendar, I create a to-be-purchased-on date for each item on the list. There are several ways to determine exactly when a purchase should be made. Obviously, if the washing machine is on its last legs, its purchase date needs to be sooner than later. However, if the current model is doing just fine, a replacement might not be needed for three, four, even more, years. The goal is to plan, as best I can, when I’ll make future purchases. Again, this is an inexact science, but for me, its better than simply hoping I have enough to buy the things I need (or want) when I need (or want) them.
I divide the cost of each item by the number of months I have to save for each item. Each item I’m saving for becomes its very own budget category. By dividing the estimated purchase price for each item by the number of months until each item is to be purchased, I can estimate monthly budget contributions for each item. Obviously, once an item is purchased, it is removed from the (active) budget categories list, and more money is freed-up, and can be used to fund additional budget categories. That’s why its important to review the financial timeline regularly, because the amounts to be allocated to various budget categories will change over time.
I make monthly payments to myself – until such time as I am prepared to make a my next major purchase. This is the fun part. For several months, I make contributions to my savings account, in anticipation of making a major purchase. Then, I transfer the required amount to my checking account – and go shopping!
The financial timeline is just another weapon in my budgeting arsenal. It helps set me – and then keep me – on track, secure in the knowledge that I’m planning for my future, and not just waiting for it.