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Making Property Taxes Suck Less with Savings Buckets

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:

Our Savings Priorities

Our Savings Priorities (aka, “Yep, I’m That Anal”)

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?

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7 comments to Making Property Taxes Suck Less with Savings Buckets

  • I receive 26 pay cheques a year and move a specific predetermined amount from each pay cheque in to a special savings account to cover the yearly costs (house insurance, car and dog registration, Christmas…) the same way you do.

    I call it the zero budget because it leaves me with no extra money after every pay cheque which is a good thing because I tend to spend unallocated money.

    My property taxes are due in installments and not in one giant yearly payment.

  • It’s impressively analytic :)
    I used to do the same with money allocated by account with complicated percentage & threshold. But in the end I understood that I was doing it more for the fun than for a real need. In the end money is just money, where it’s stored doesn’t matter. Now we use only a checking account with our debit card, a saving account and a retirement/stock account.
    I found it useful to allocate money per account when I had tight deadlines (like saving for wedding without neglecting emergency fund or retirement). But after a while I became disciplined enough not to need it, I just split extra income in retirement & overall savings depending on upcoming deadlines.

  • IT’s very smart to separate the funds into different categories. I am impressed that you can manage to save 50% monthly income. I am still renting so no need to pay taxes or HOA.

  • I use YNAB and just add up all the fees from the previous year add 10-15% just-in-case and divide by 12, that’s how much goes into that month’s budget for that particular bucket.
    Our property taxes and homeowner’s insurance are still part of our mortgage and will be for a while, and our employers take out our federal and state taxes, but we set aside some extra because we always seem to end up owing 3-4k in federal taxes no matter how much we tell them to take out of our paychecks :(
    We save for maintenance (car and house), car and life insurance, vacation, and a new vehicle, but the amounts in the new vehicle are relatively low since we want to pay off debt first.

  • We do similar things. We budget and save up for them. But we also cash flow as much as we can in the month that they’re due and keep the savings as a little extra emergency fund or an “in case something happens next year and we can’t cash flow” fund.

    So we usually don’t deplete the bucket and then build it back up. We’re usually at least half full.

  • For property tax and homeowners insurance, we just pay extra with our mortgage payment into the escrow account. Then the mortgage company pays the property taxes and insurance for us. It is much easier that way because I don’t have to deal with it, and it is a minimal amount that we are missing interest on (less than $4000 per year total for both).

    For income taxes, my husband is self-employed as a sole proprietor but instead of doing quarterly payments, we just withhold a LOT extra from my paychecks. It equals out to the same thing at tax time since we file jointly. It just makes my paychecks really small since I have to withhold almost $2000 extra in taxes from my pay per month.

  • I like seeing other people’s money management systems laid bare! Especially the non-monthly stuff. We have lots of targeted savings accounts, though none for property taxes. What’s the reason that you have savings bucket for retirement accounts instead of dollar-cost averaging throughout the year?