We paid a buttload in property taxes this month, and the only reason that I’m not bawling my eyes out is that we saved it up throughout the year. Savings buckets work if you make sure to treat them like they are not your money anymore once you make a deposit.
Our Savings Buckets
I have set us up quite a few separate savings accounts at CapitalOne360 (formerly ING). In fact, here they all are:
- Emergency Fund – for crappy months that pop up. A small percentage of any monthly extra gets put here until this hits $15,000.
- Taxes / Insurance / HOA – set monthly amounts for property taxes and 30% of our paychecks get put here, no limit.
- Roth IRA / Investments – a super huge chunk until the Roth IRA’s are fully funded, no limit.
- Home Maintenance – large percentage of any monthly extra until this hits $10,000.
- Rent Home Maintenance – large percentage of any monthly extra until this hits $10,000.
- Car Maintenance / New Car – $500 a month gets sent here plus a small percentage of any monthly extra until it reaches $25,000.
- Vacation – 5%-15% of any monthly extra depending on how the other accounts look, $5000 limit. We stole from it for the new house too.
- Hubby’s Fun Money – 2.5% percentage of any monthly extra. If it gets huge, we steal from this for other goals (like when we bought our new house).
- My Fun Money – 2.5% percentage of any monthly extra. If it gets huge, we steal from this for other goals (like when we bought our new house).
Altogether, we squirrel away half or more of our gross income into those accounts every month (obviously, the tax account sees the most, lol).
No Exception Rule
Moving money from our checking account into those savings accounts isn’t the hard part. The hard part is avoiding the impulse to raid accounts at will when we really want something. Heck, sometimes we make the choice to ignore our own advice. For example, we zeroed out the vacation account and the car account when we bought our new home in October 2012.
But we do have one no exception rule.
We don’t touch the taxes account for anything other than income taxes, property taxes, home owner’s insurance on both homes, the Home Owner’s Association fees, and an annual allowance to check for overages. No exceptions.
Once money is put into this account, it can’t be taken out unless there is a surplus in April of each year after our income taxes are paid (and yes, we take into account January-April’s contributions when we check for the surplus). If there is any money that wasn’t used for the previous year that was set aside, we divide it up between our other savings buckets based on where our percentages are set at the time and move on.
Prioritizing Your Savings Buckets
We base our percentages breakdown of where to place excess cash on which goals have the highest priority for us. Once those are achieved, the percentage of the money that we were funneling that way then gets divided up between the remaining savings buckets. For example, here is a screen print of our percentages sheet:
As you can see, we have prioritized our goals in the left column and along the top. We base the percentages breakdown of savings on these priorities. When one is fulfilled, we move to the next column of the sheet and use that breakdown instead. We’ve only made it to the second column this year (Percentages After Roth IRA Target). We’re hoping to blow this chart away next year, lol.
How do you handle annual expenses like property taxes and home owner’s insurance?