How to make paying your year end property taxes painless
By glblguy
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!
December 6th, 2007 at 6:02 pm
Hey, I was just writing a post about the same thing today – interesting how we are all thinking on the same wavelength sometimes…
December 6th, 2007 at 6:39 pm
ChristianPF, I agree…kinda scary. The same day I published my article on PriceProtectr, j.d. over at Get Rich Slowly published a similar article. Pure coincidence…we were actually laughing about it.
December 6th, 2007 at 8:32 pm
We put aside $$ each month in several categories……and then
it builds up so we have enough when the bill is due. We do this
for property tax, estimated tax, vacation, medical, car repair
Christmas, and homeowners insurance.
It took awhile before we were able to fund all of these.
We started with the taxes categories and then added
more categories as we went along. Now if we have a car repair
there is $$ available…it has helped a lot and I recommend it.
Our income isn’t huge either…we meet our basic expenses with
half our yearly income and then use the rest for savings and
retirement. It isn’t easy but it works. Our budget is pretty
tight but we are managing ok.
December 6th, 2007 at 8:40 pm
That’s great Amy. It really is a great way to make sure you have money for expenses. Hopefully your comment will encourage others. thanks!
December 7th, 2007 at 8:31 am
Hi there! Good article and a good reminder of how important planning ahead is. It seems as though we do so little of it in our culture. This is demonstrated by the use of credit to pay for known expenses just a few months away. It is no wonder if folks don’t do that, they certainly are not planning for a time when they cannot support themselves any longer.
I have a question for you and your readers. How many separate accounts do you have in you on-line banks? I had to call ING recently and asked the customer service if I had too many. (I have 8). He said the most he has seen is 30!). It makes sense though to have a separate one for each non-monthly expense. I have one lumped into “Future Liabilities” and keep a spreadsheet. That has 9 annual expenses in the one ING sub account. I have often wondered if I should split them out into their own sub account in ING. It would make it easier to track, no spreadsheet work to do.
What do others do?
December 7th, 2007 at 10:42 am
Hi, thanks glad you enjoyed it. I have 6. Bob over at ChristianPF has 6. Lauren at Saving Explained looks like he has 15. Sounds like a good poll though. I’ll put one up this weekend. I had one as well, and split them out, just makes it much easier to track. Thanks for the great comment and question!
December 7th, 2007 at 1:05 pm
I do the same thing for all of my irregular spending categories, and it’s probably the single best thing I’ve done to reduce the stress I used to feel about my finances. It makes things a lot more predictable and steady so I don’t feel like I’m constantly trying to come up with big lump sums for things like car registration and Christmas.
I only have one ING account to keep track of all of my categories, but I keep an excel spreadsheet to track how much money is in each fund. I might switch to doing multiple accounts at some point, but right now I like that I can add all of the interest earned into one of the funds (my emergency fund) without having to do any actual bank transfers.
December 7th, 2007 at 5:08 pm
TV Girl, good point on the interest. That is a bit of a hassle, although a minor one. Thanks!
December 11th, 2007 at 1:32 pm
Excellent article! I plan to include a link to your post in my weekly carnival review next Friday.
Best Wishes!
D4L
December 11th, 2007 at 2:35 pm
@Dividents4Life – Thanks and appreciate that.
December 12th, 2007 at 4:35 pm
I do the one account with a spreadsheet for my irregular expenses, but I use an account that’s directly linked (immediate transfer) to my checking account. I do have ING accounts for the efund and longer range saving (2-3 years out) for new car and house upgrades.
The categories are: Property tax (vehicle and house), vet expenses, clothing, gifts, car repairs, insurance (vehicle, house, health) and their deductibles (life insurance is paid monthly). Basically anything that might be a budget buster. These expenses are, after all, accruals – you know they are coming, so there’s little excuse not to fund them in advance. I’m trying to work up to having a year in advance for most of the categories.
I agree, it’s one of the best things I’ve done for myself. No more panic.
December 13th, 2007 at 8:10 am
@threadbndr – Great comment, and just really puts some focus on how once you start doing this, how obvious it seems. I can’t believe I wasn’t doing this before. Oh if we only knew then what we know now. No panic, I’m all for no panic! Thanks for your comment.