Tuesday, June 24, 2008

Savings for the Tax- Refund-less

Sunday, I talked about changing my W4 and the fact that we would no longer be able to use our refund to pay off our house taxes. Yearly expenses like this are pretty easy to save for so they don't hit you like a ton of bricks. I like Dave Ramsey's statement, "Christmas is NOT an emergency." Nope, it is every year on Dec. 25th, just like our taxes on our home are due each year on Feb. 1. However, expenses like these have always had a tendency to slap us in the face. Like we weren't expecting them.

Truth is we were just being irresponsible. So, what do you need to do to prepare for such expenses?

What are your yearly expenses? Ours are real estate taxes, vehicle taxes, flood insurance, and you could add holidays like Christmas if you are so inclined.

How much is the grand total? Add up all of the expenses. Let's say for the sake of simple math, that our total bill comes to $2,400. That is how much we need to have saved each year in order to pay these bills.

How much per month? Take your grand total. In our case $2400 and divide it by 12. (That being the number of months in a year, just in case.... you never know what might confuse folks). Therefore, our monthly savings must equal $200. If we save this amount each month, we will have the money as each "event" rolls around.

Don't worry!! You will probably never actually see $2400 in the account, but that is okay. Since you continue to save this amount each month when it gets used up by an "event" the total in the account is going to go down. Maybe even to a level lower than the next bill that is due. However, if you have enough months between you and the next bill, the money should be saved up in time for the next "event" (don't ask why I keep putting that in quotes, I just do).

So, this is saving for recurrent yearly expenses for those of us who don't get a tax refund.

** On a way off topic, topic, can I just say I hate being an adult sometimes. I hate saving money each month that I don't get to play with later. At the same time, I am really glad I have finally woken up and started being responsible with my money!! ** End off topic, topic.

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