1 Easy Method that Makes Annual Bills a BREEZE
Home ownership is a dream-come-true for many, but when tax season rolls around it can be shocking if you’re not prepared. Using this easy principle can help you avoid this anxiety-inducing cycle!
The “sinking fund” method is so simple, it is almost shocking. Take any recurring or annual bills and break them up into smaller monthly “chunks” that are automatically transferred to a designated account. Before you know it- voila! You will be able easily write the check whenever the bill is due, since it has been gradually adding up over the preceding months.
Grab a calculator. Simply divide the total of the amount of the bill by 12 to get your “monthly payment” amount; automatically set aside this money every month so that you can break up the annual payment throughout the year.
- Create a separate savings account for these annual/semi annual taxes and fees. This keeps your money separated and categorized, so that you don’t forget what it is set aside for or accidentally use it for something else.
- Set up automatic monthly transfers into your savings account used for annual tax/bills so that you don’t miss a month and it makes saving super easy!
- If the bill is due soon, start where you are and divide the bill by the remaining months. Example: you have 4 months until your $2,000 bill is due, so you divide that by 4 (the number of months remaining) and automatically transfer $500 to your tax savings account. Then, after it is paid you can decrease your transfer/savings amount to 1/12 every month (which would be $167 for a $2,000 annual bill).
- If you have a recurring bill that fluctuates (the amount due changes), create a slightly higher “ballpark” estimate- about 10% more than what you expect it to be, so that you have a little cushion.
There are many applications for this method. You can even use this method for expenses such as Christmas gifts! If you know you usually spend “X” amount on gifts every December, go ahead and divide that up by the number of months preceding and automatically set it aside.
If you would like to stop the “tax season dread” and experience more financial freedom, this one simple saving technique can be life-changing!
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