Friday, November 08, 2013

More on growing an escrow savings account for bills that aren't monthly....

Back about a year and a half ago, I wrote a blog post, Pinching Abe's Budgeting Tips:  Pay Cash, OPM, and Odd Bill Budgeting.

I live in Virginia, a state hit hard by furloughs last summer and a government shut down in the past month.  Lots of my friends actually got interested in the Odd Bill Budgeting plan that we employ and have asked me specific questions about how we do it.

By odd bills, I mean bills that aren't monthly like your cable, electric, gas, etc.  These bills are every single bill you pay that isn't monthly.  For our budgeting purposes, it includes:
  1. Estimated Car Tax.  Yes, in Virginia, we pay a personal property tax on our vehicles... every year.  This is several hundred dollars, due (in)conveniently right before Christmas.  Ho, ho, ho!
  2. Car registration fees
  3. Town sticker fee, a local tax
  4. Life insurance policy premiums
  5. Car insurance
  6. Sewer/water fees
Next, we add them all up and then determine a cushion, just like your bank does when determining its escrow figures for your taxes/HOA fees.  We used 1/6th of the amount and added it to the total.  Divide this by the number of pay periods.

Don't break me! Save for bills the easy way.
Every pay check our bank auto deposits that set amount into a special savings account that we pretend does not exist... that is, until one of those odd bills shows up in the mailbox.

Imagine having to pay a $180 sewer bill, $250 in life insurance, and $400 in car tax in early December?  Ouch!  That's our reality.  But this escrow savings account helps us by keeping us on track throughout the year to have the money when we need it.

If you can afford to pay a bill out of your normal account, then do so. This is easier for those smaller, yet pesky bills (such as car registrations).  This will increase the cushion you have in case one of your normal bills increases substantially.  It's also a great way to save more in general.  Having the cushion also makes it easier to opt for options such as paying two years of car registration instead of one, if it will save you money in the long run. 

Just be sure to analyze your account at least once per year to plan for any increases that you might be aware of --- such as adding a child to your car insurance.

This plan could also be used to help plan for future expenses.  If you know you're going to need a new fridge in the next year, you could escrow $100 a month.  If you need the fridge sooner rather than later, you'll have some money saved up for it.
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