{"id":359,"date":"2022-07-18T12:00:00","date_gmt":"2022-07-18T12:00:00","guid":{"rendered":"https:\/\/moneywithkatie.com\/planning-for-big-purchases-saving-or-investing\/"},"modified":"2025-08-29T16:31:46","modified_gmt":"2025-08-29T16:31:46","slug":"planning-for-big-purchases-saving-or-investing","status":"publish","type":"post","link":"https:\/\/moneywithkatie.com\/planning-for-big-purchases-saving-or-investing\/","title":{"rendered":"Planning for Big Purchases: Saving or Investing? [2025]"},"content":{"rendered":"<div class=\"sqs-html-content\" data-sqsp-text-block-content>\n<p class=\"\" style=\"white-space:pre-wrap;\">Sometimes in life, we need to make a big purchase.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">The $50,000 wedding you only budgeted $25,000 for (oops). A 40-ft. aquarium to keep your cat busy during the day. A house with a backyard so it\u2019ll distract your kid while you Zoom within an inch of your life. Oh, and four words: SoulCycle at Home Bike (oops again).<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\"><strong>What considerations should we think about when planning for big purchases?<\/strong><\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">Today, we\u2019ll look at this from two angles:<\/p>\n<ul data-rte-list=\"default\">\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\"><strong>Saving up<\/strong> for big purchases, and the optimal way to do so (read: should you be saving in a savings account or investing the money?)<\/p>\n<\/li>\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\"><strong>Using the money <\/strong>you\u2019ve saved or invested for a purchase<\/p>\n<\/li>\n<\/ul>\n<\/div>\n<hr \/>\n<div class=\"sqs-html-content\" data-sqsp-text-block-content>\n<h2 style=\"white-space:pre-wrap;\">Timelines for saving up for big purchases: Saving vs. investing<\/h2>\n<p class=\"\" style=\"white-space:pre-wrap;\">I hear people ask fairly frequently: \u201cI want to buy a house in X years. Should I invest that money?\u201d<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">Then I ask: \u201cWell, is your timeline flexible?\u201d<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">If you\u2019re signing a blood oath with your lender in seven months and you need that down payment ready to rock\u2014or else\u2014it\u2019s probably not wise to put it in the stock market and risk losing some of it, like many of us are experiencing in this bear market.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">But if you\u2019re like, \u201cMeh, I wanna buy a house\u2026eventually\u2026probably in like, three to five years. But who\u2019s counting? I don\u2019t know,\u201d then I wouldn\u2019t let that down payment wither away in a savings account.<\/p>\n<h3 style=\"white-space:pre-wrap;\"><strong>Suggestion #1<\/strong>: If you need the money in 12-18 months and your timeline is not flexible, don\u2019t bother with investing. Just save it instead.<\/h3>\n<p class=\"\" style=\"white-space:pre-wrap;\">Aside from the risk of losing money you\u2019ll need, the bigger issue with this approach is the fact that <em>investing for a few months won\u2019t really do much. <\/em>Sure, you may make a few hundred bucks, but really, investing is a long-term game. It\u2019s not intended to be something you do for a few months then call it a day.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">Investing builds wealth over years of compounding. If you don\u2019t have years (and you\u2019re not willing to wait), just keep it in cash.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">Now, if I were Ruler of the Universe, everyone would invest in their twenties before doing anything major like buying a house\u2014everyone would have a few hundred thousand by the time they needed to make this decision, so it wouldn\u2019t be an issue. But since I realize that\u2019s not always how people operate, I think it\u2019s important to state a timeline explicitly here.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">That said, if you\u2019re still in the process of <em>building<\/em> something as big as a down payment (meaning you don\u2019t have the full amount yet) and you <em>do <\/em>have a few years ahead of you, investing can supercharge that experience. (And while I have your attention about housing,<a href=\"https:\/\/www.moneywithkatie.com\/blog\/when-the-math-supports-buying-your-primary-residence-instead-of-renting\" target=\"_blank\"> <span style=\"text-decoration:underline\">this post<\/span><\/a> helps you determine whether you\u2019re better off renting or buying.)<\/p>\n<\/div>\n<figure class=\"block-animation-site-default\">\n<blockquote data-animation-role=\"quote\" \n<p>   ><br \/>\n    <span>\u201c<\/span>If you\u2019ve got several years to accumulate the funds, investing in something flexible (like a brokerage account) probably makes sense.<span>\u201d<\/span>\n  <\/p><\/blockquote>\n<\/figure>\n<div class=\"sqs-html-content\" data-sqsp-text-block-content>\n<p class=\"\" style=\"white-space:pre-wrap;\">Maybe you don\u2019t want a down payment\u2014maybe you want a Soul bike (again, guilty) or a $4,000 pure-bred doodle shmoodle dog from a breeder named Anastasia (though, may I humbly suggest adopt a shelter animal like Sam Cat?). These purchases aren\u2019t worth tens of thousands of dollars, yet they still need to be budgeted for separately from regular spending\u2014and if you\u2019ve got several years to accumulate the funds, investing in something flexible (like a brokerage account) probably makes sense.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\"><em>\u201cBut Katie, what about the taxes in a brokerage account? Shouldn\u2019t I avoid taxes by just saving my money instead?\u201d<\/em><\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">I understand the fear around paying capital gains taxes, but <strong>the interest you earn in a high-yield savings account is also taxable. <\/strong>In fact, it\u2019s taxed at a <a href=\"https:\/\/www.fidelity.com\/tax-information\/tax-topics\/interest-income#:~:text=Interest%20taxed%20as%20ordinary%20income,given%20for%20opening%20an%20account.\" target=\"_blank\"><span style=\"text-decoration:underline\"><em>higher rate<\/em><\/span><\/a><em> <\/em>than long-term capital gains and the <em>same rate<\/em> as short-term capital gains.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">That means if you\u2019re afraid to invest for something that\u2019s still a couple years away for fear of paying long-term capital gains taxes on the gains, you should also avoid high-yield savings accounts\u2014because you have to pay tax on that growth, too.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">That\u2019s why your HYSA provider sends you a 1099-INT for tax season. The interest is taxed like ordinary income, meaning it\u2019s taxed at your marginal tax rate.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">Check out <a href=\"https:\/\/www.instagram.com\/p\/CPJNXCgHiT1\/\" target=\"_blank\"><span style=\"text-decoration:underline\">this Instagram post<\/span><\/a> where I broke this down with an example that<em> <\/em>demonstrates why the HYSA may be costing you more than you think if you\u2019ve got a flexible timeline of more than a couple years.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">TL;DR: Taxes should be the <em>least <\/em>of your worries when it comes to make the saving vs. investing decision. At the end of the day, if you\u2019re paying capital gains taxes on your earnings (usually 15%), <em>it means you made money<\/em>.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">The <em>most <\/em>important thing is time horizon.<\/p>\n<\/div>\n<hr \/>\n<div class=\"sqs-html-content\" data-sqsp-text-block-content>\n<h3 style=\"white-space:pre-wrap;\"><strong>Suggestion #2<\/strong>: If you\u2019re saving up for a discretionary purchase that costs less than $10,000 but more than what your monthly budget allows for, designate a few categories in your budget that can be put \u201ctoward\u201d that saving goal each month.<\/h3>\n<p class=\"\" style=\"white-space:pre-wrap;\">When saving up for my bike, the thing that I tried to avoid was dipping into money that I would have otherwise been saving and investing<em> <\/em>to pay for it. Instead, I wanted to defer existing spending into the future where possible.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">Another high-level example:<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">Let\u2019s say I spend $3,000 per month and invest $2,000 (so my total income = $5,000). If I\u2019m saving up for my [insert expensive thing here], I\u2019d <em>ideally<\/em> be shaving some money off that $3,000 spending chunk each month vs. dipping into the $2,000 per month I\u2019m investing.&nbsp;<\/p>\n<\/div>\n<figure class=\"block-animation-site-default\">\n<blockquote data-animation-role=\"quote\" \n<p>   ><br \/>\n    <span>\u201c<\/span>The bulk of the savings for the discretionary item should ideally come from money you were planning to spend anyway.\u00a0<span>\u201d<\/span>\n  <\/p><\/blockquote>\n<\/figure>\n<div class=\"sqs-html-content\" data-sqsp-text-block-content>\n<p class=\"\" style=\"white-space:pre-wrap;\">Maybe I have $300 earmarked for travel and $300 earmarked for shopping. I\u2019d try to file that $600 chunk that <em>would\u2019ve<\/em> been spent in those two categories for my future expense and not spend it, waiting for the $600 chunks each month to accrue to the point that it\u2019s enough for [thing I\u2019m trying to buy] while still meeting the same investing goal every month.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">Remember, money is about priorities. You can buy expensive stuff and still meet your investing goals\u2014you simply have to plan for it. And maybe you\u2019re not earning quite enough yet to where you can defer <em>the entire<\/em> amount from present-day spending, but the bulk of the savings for the discretionary item should ideally come from money you were planning to spend anyway.&nbsp;<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">Too often, the chunk of money we\u2019ve earmarked to invest is the first place we go when we need cash. Instead of investing it, we set it aside and blow it on something called a Cloud Couch from Restoration Hardware (which I\u2019ve been told is all the rage with the Zillennial YouTubers), investing goals be damned.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">It pains me so: The power of compounding is on your side to grow that investing chunk to Cloud Couch-levels over time instead of spending now.<\/p>\n<\/div>\n<hr \/>\n<div class=\"sqs-html-content\" data-sqsp-text-block-content>\n<h2 style=\"white-space:pre-wrap;\">Using your savings: An order of operations for spending<\/h2>\n<p class=\"\" style=\"white-space:pre-wrap;\">Maybe you\u2019ve got plenty of money lying around and you\u2019re ready to make a big purchase. The good news is, if you\u2019ve followed the first two suggestions in the \u201csave up\u201d period, this shouldn\u2019t really be a question: You\u2019ve likely got the cash (or investments) earmarked somewhere already.&nbsp;<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">But let\u2019s say you\u2019ve found this post on the <em>other<\/em> side of saving. You\u2019ve saved in an emergency fund. You\u2019ve saved in a brokerage account. You\u2019ve got a Roth IRA. You\u2019ve got funds to draw from everywhere. Where do you pull from to make your big purchase?<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">Here\u2019s how I think about this decision, based on the \u201cvalue\u201d of the money in each of these accounts from worst to best:<\/p>\n<ul data-rte-list=\"default\">\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">The worst place to pull from: Your <strong>Roth IRA<\/strong><\/p>\n<ul data-rte-list=\"default\">\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">While your Roth IRA can technically function as a back-up emergency fund because you can access your contributions at any time, I wouldn\u2019t recommend it. <strong>Your Roth dollars are the most valuable ones you have because they\u2019ll never be taxed again.<\/strong> They\u2019re a veritable wealth snowball, and you don\u2019t want to do anything that\u2019ll make that snowball smaller unless you absolutely have to. If you do pull out (your limited!) Roth contributions, you can\u2019t retroactively go back in and re-contribute those same funds for the original contribution year (if I put in $6,000 in 2020 and took it out in 2021, I can\u2019t <em>then<\/em> go back and put $6,000 of 2020\u2019s contributions back in because 2020 is already over).&nbsp;<\/p>\n<\/li>\n<\/ul>\n<\/li>\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">The second-worst place to pull from: Your <strong>Emergency Fund<\/strong><\/p>\n<ul data-rte-list=\"default\">\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">While needing an at-home stationary bike that connects you to a portal of beautiful, sweaty people can often feel like the closest thing to an emergency you\u2019ve experienced since the Kardashians announced their new show on Hulu, it\u2019s something we should plan to buy, not buy in a frantic haze. <strong>The emergency fund is the backbone of your financial life, because it\u2019s what enables you to invest comfortably.<\/strong> Without a fully stocked emergency fund (read: a cushion of cash you could pull from if shit hits the fan), you expose yourself to unnecessary risk. The <em>amount<\/em> you need in your emergency fund definitely varies depending on your lifestyle, but in general, I wouldn\u2019t recommend using this for a purchase you <em>can<\/em> plan for.<br \/>The worst<em> <\/em>thing you can do, in terms of opening yourself up to a lot of financial risk, is use your entire savings to put a down payment toward a house. When you buy a home, you\u2019re also  buying a 30-year headache. Shit breaks, and it costs money. Buying a home is a situation that necessitates<em> <\/em>an emergency fund\u2014if you have to use yours to get a house, it\u2019s not yet time for home ownership.<\/p>\n<\/li>\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\"><a href=\"https:\/\/www.moneywithkatie.com\/blog\/the-best-place-for-your-emergency-fund-betterment-safety-net\" target=\"_blank\"><span style=\"text-decoration:underline\">Here\u2019s where I keep my emergency fund<\/span><\/a>.<\/p>\n<\/li>\n<\/ul>\n<\/li>\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">The slightly fine place to pull from: Your <strong>taxable brokerage account<\/strong><\/p>\n<ul data-rte-list=\"default\">\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">Notice how I said <em>slightly fine. <\/em>I\u2019m not outright condoning dipping into your taxable brokerage account, but if you gotta pull from somewhere, it\u2019s a good option. Because the dividend income and bond yield in this account is being <a href=\"https:\/\/www.fool.com\/the-ascent\/buying-stocks\/taxes-on-brokerage-account\/\" target=\"_blank\"><span style=\"text-decoration:underline\">taxed every year<\/span><\/a> and you\u2019ll be taxed on your gains when you eventually sell, it\u2019s less valuable than the money in a Roth IRA. It\u2019s also not as serious a line of defense as your emergency fund is. If money is in your taxable brokerage account, that money is usually excess.<\/p>\n<\/li>\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">After all, someone that invests aggressively for years will probably amass a pretty big sum in their brokerage account and may not keep much in cash. If you\u2019ve got $150,000 in a brokerage account and you want to pull $1,000 out to buy a MacBook, have at it. What I\u2019m trying to dissuade is someone who <em>just <\/em>started investing and has $3,000 in a brokerage account from pulling out $2,500 to buy a used Peloton on the black market (at least<em> <\/em>get the Soul bike; it\u2019s sturdier). Just kidding.<\/p>\n<\/li>\n<\/ul>\n<\/li>\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">The technically optimal place to pull from: <strong>Your actual checking or savings account<\/strong><\/p>\n<ul data-rte-list=\"default\">\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">If you\u2019re like, \u201cThanks, Captain Obvious. WTF?\u201d Cash is your least valuable asset. It\u2019s a melting ice cube, losing money to inflation every year. This is why Suggestion #2 above (planning intentionally for your purchases) matters so much. It allows you to shuffle a few hundred bucks every month into a nearby cash account that you can use without having to sell any assets in a brokerage account (or, worse, the Roth IRA).<\/p>\n<\/li>\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">This is where we tie everything into a nice little bow and circle back to our original \u201csaving up\u201d piece. Ideally, you\u2019d use money that\u2019s \u201cleftover\u201d in checking from spending every month. What happens when you under-spend for a few months in a row? You ultimately end up with a nice little pool of extra cash from your cash flow just hanging out, unspent. That sum is the ideal chunk to spend on whatever it is you\u2019ve got your eye on. You aren\u2019t disadvantaging your investing goals, you\u2019re not putting yourself in a dicey position with your emergency fund, and ultimately, it\u2019s money that would\u2019ve or should\u2019ve been spent anyway.<\/p>\n<\/li>\n<li>\n<p class=\"\" style=\"white-space:pre-wrap;\">I realize this won\u2019t work for something as big as a down payment. You don\u2019t just accidentally underspend enough to buy a house; that\u2019s an act of intentional wealth accumulation. Here\u2019s how I personally think about it: I put thousands of dollars every month into a brokerage account. Whether I use that brokerage account as a source of income in early retirement or use some of the money later to buy a house is irrelevant at this point: What\u2019s important is that the money is building wealth more quickly than if it were just chillin\u2019 in a savings account.<\/p>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p class=\"\" style=\"white-space:pre-wrap;\">With my panini bike purchase, I had been consistently several hundred dollars under-budget for the previous six months or so. I know this was the case because I track my income, spending, and investing every month, so I could see the portion allocated for spending, and I knew it was hanging out in checking, waiting to be spent. I didn\u2019t know I was going to end up spending that money on a bike, but I knew at some point something would come along.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">Being able to get that bike was the product of months (if not years) of making decent financial decisions most of the time. It didn\u2019t require perfection, just <em>attention<\/em> (and tracking; lots of tracking.).<\/p>\n<\/div>\n<hr \/>\n<div class=\"sqs-html-content\" data-sqsp-text-block-content>\n<h2 style=\"white-space:pre-wrap;\">Conclusions<\/h2>\n<p class=\"\" style=\"white-space:pre-wrap;\">I reiterate: Your saving and investing plan doesn\u2019t have to be perfect!<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">But it\u2019s the difference between having some semblance of a plan and tripping through life, Discover card in outstretched hand, swiping indiscriminately and squinting through the pain of opening the bill PDF.<\/p>\n<p class=\"\" style=\"white-space:pre-wrap;\">Every layer of this whole \u201cfinancial wellness\u201d game layers on top of each other. First comes the budget. Then comes the different types of accounts. Then<em> <\/em>comes an article like this one, that builds on those two fundamentals as a way of determining the most optimal way to live a real life within the parameters of the financial structure you\u2019ve created for yourself.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Sometimes in life, we need to make a big purchase. The $50,000 wedding you only budgeted $25,000 for (oops). A 40-ft. aquarium to keep your cat busy during the day. A house with a backyard so it\u2019ll distract your kid while you Zoom within an inch of your life. Oh, and four words: SoulCycle at [&hellip;]<\/p>\n","protected":false},"author":178814,"featured_media":2424,"comment_status":"closed","ping_status":"open","sticky":false,"template":"si-template-single-post-big-purchases-cars-and-houses.php","format":"standard","meta":{"footnotes":""},"categories":[37,35,36],"tags":[43,58,44],"class_list":["post-359","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-financial-independence","category-investing-and-taxes","category-spending-and-saving","tag-big-purchases-cars-and-houses","tag-popular-big-purchases-cars-and-houses","tag-taxable-investing"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Planning for Big Purchases: Saving or Investing? 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