Part Two Create An Escrow Account For Known, Upcoming Expenses
For those unfamiliar with an escrow account, it is a savings account that is generally established by a mortgage company. The mortage company totals the annual cost of property taxes and homeowner's insurance and divides it by the number of payments being made each year. The mortgage company then pays for the taxes and insurance from this escrow (savings) account. For example, if the property taxes are $1,200/year (sorry Chicago folks – this is how low they are in the South) and the insurance is $600, then the total amount needed each year is $1,800. The mortgage company will collect $150 extra with each monthly payment to place into the escrow account.
An escrow account smooths out the cost over a year – instead of having to pay for it all in one month. It tightens the monthly budget, but having a fully funded escrow account sure is AWESOME when vacation arrives and the money has already been saved to pay cash for it! Those who have a mortgage with an escrow account will testify to the fact that they never worry about paying for the taxes and insurance – ask someone!
Take a moment to read THIS POST about how to calculate the amount you need to save each month for your known, upcoming expenses.
Take it from one who has lived it – if you do not plan for your known, upcoming expenses, your ability to save money will be tremendously hampered!