How to make paying your year end property taxes painless
Do you wait until the last minute to pay your property taxes (also called real estate taxes), hoping the funds will just appear in a surprise windfall of cash? Of course we both know that never happens. This article will tell you how I stopped doing the same thing and will help you be better prepared. Start planning ahead, have the funds the pay your taxes when you need it and get some extra interest in the process.
This month provides a prefect example of how I try to practice what I preach, but I’m not always successful. Here it is the 5th of December and I hadn’t done our December budget yet. I decided yesterday I had to dedicate some time to doing our budget. Fortunately I have almost all of our finances set-up on automatic payments, so I don’t have to do a whole lot, but it did take a good half hour to update the spreadsheet and review everything.
In my budget spreadsheet, I keep a list of any upcoming bills or payments that aren’t paid automatically. I review this list each time I do our budget. The big item on the list for December is paying our city and county property taxes which this year total to $1,881.34. A pretty large chunk of change, and had we not prepared a HUGE budget buster.
Prior to this year, we knew we paid taxes yearly, yet denied the fact that we actually had to pay them. December would come around, and the property taxes would be due along with all of our Christmas expenses. We never had the money, and would resort to using our credit card to pay for our property taxes. We would always tell ourselves: “We’ll pay it back when our income tax return comes in”. Of course we never did that.
This year, as part of our complete financial turn around we planned ahead. In January of last year, we set-up an INGDirect sub-account to serve as our property tax fund. We also set-up an automatic transfer from our Wachovia primary checking account. The amount was the expected property tax payment for this year divided by 12. This became a fixed line item in our budget.
Last night, while doing the budget, I added a row to the income section of the December budget in the amount of the balance of the property tax fund. I then added another row to the expenses section in the amount of the taxes due. I did underestimate the property tax increase for this year, but only by a little and I can absorb that in my normal budget. The interest I earned on the property tax fund ($3.00) wasn’t much but helped a little. Towards the end of the month, I’ll transfer the money over into our primary checking and initiate an online bill pay to pay the tax bills. Quick and easy…best part, no stress and no more credit card debt.
This technique of course doesn’t apply to to just property taxes, it can be used for any known future expense. We use this technique for our Christmas fund, our insurance (we pay yearly), our Anniversary celebration fund, and our Home Owners Association dues. We determine at the beginning of the year how much we’ll need, divide by 12 and set-up automatic transfers.
If you are interested in setting up an ING Savings or Checking account (I have and use both) let me know and I’ll send you a referral. You will get $25 dollars and I’ll get $10 as soon as you make a $250 deposit. Hey, free money…you can’t beat that!
Do you do this? How do you save up for these types of expenses? Do you a different approach you use? Share your feedback, ideas and thoughts by leaving a comment. I love comments!