How to pay recurring bills like taxes and insurance?

[JoeP]

We have a system that works, but would love to hear what others are doing.

Our mortgage has been paid off for a couple years now, but we still have recurring fees: county tax, school tax, insurance policies (home/auto/term). Some of these came out of escrow, which vanished when the mortgage was satisfied. The solution we found that works well is to calculate the annual combined costs, divide by the number of pay periods per year, and then set direct deposit into a dedicated checking account. When a bill comes, we already have money set aside. To account for increases in the costs, we increase the direct deposit by about 10% per year.

What do you do?

[disneysteve]

I just pay them out of our checking account. I keep a buffer of a couple thousand in that account but if I ever need more than is sitting in there, I transfer it over from our Ally account which takes a couple of days.

We paid off our mortgage in 2019 so the challenge for me is staying aware of when property taxes are due. I have a post-it note on my desk to remind me so that I don't forget to pay it.

[kork13]

We do basically the same thing, though some recurring bills are simply paid directly out of cashflow, like car/home/life insurance. For property taxes, we set aside a monthly amount for it in a savings account set aside for home maintenance/repairs/taxes, and when the bill comes due, we transfer the money out & pay it. We do the same for vacations/travel, rental home repairs/maintenance, and (on a longer timeline) for buying new cars -- those are all less predictable, but we operate them effectively the same way.

[Jluke]

I plan ahead. I know my home insurance is due November. Auto insurance and property taxes in March and school taxes in July.

for the first three they are right around 2k each. I just start to set aside money in lumps so I know I can cover them as the time nears.

for school taxes that is a bigger bill (7500) I’ve done a 12-month CD for $7k in the past so it would mature right in July. This year I sent $5k to ETrade as I should be getting a $75 account bonus. Then I’ll just make up the difference with savings.

for all of the above I would basically be setting aside 1k per month to cover them if I did it like OP.

I prefer the lumps and not a recurring deposit. But I still have a mortgage so cash flow gets eaten up with that.

sometimes I wonder just how I do it but my planning always works (so long as I have income)

[JoeP]

I just pay them out of our checking account. I keep a buffer of a couple thousand in that account but if I ever need more than is sitting in there, I transfer it over from our Ally account which takes a couple of days.

We paid off our mortgage in 2019 so the challenge for me is staying aware of when property taxes are due. I have a post-it note on my desk to remind me so that I don't forget to pay it.

We get a paper bill in the mail. School taxes in August and property taxes around January.

[ua_guy]

We had a paid off mortgage, and the tax bill was paid twice yearly out of our regular checking account and we kept a set buffer in there for that exact reason. Property taxes were only $500 for every 6 month period though, so it wasn't catastrophic for our situation. We did have income tax there, though and it was a solid 10%. Pay out the nose or the mouth, they'll get you one way or the other.

Now we have a mortgage in a state with no income tax, but property taxes are pretty high. Our tax bill on our new place is about $10,500/year so $875/month. It goes into escrow, but, if all goes according to plan, we'll have the house paid off by June 2021 and will need to rethink our strategy. For that we will probably siphon off into a separate account per paycheck so that it builds up like an escrow account would. I want to make sure we're conscientiously saving enough for the property taxes but also so we're saving enough general savings too.

[disneysteve]

We get a paper bill in the mail. School taxes in August and property taxes around January.

We pay property taxes quarterly but they only send a bill twice a year, one with stubs for the 1st and 2nd quarters and then the 3rd and 4th quarters.

[disneysteve]

We’re able to pay all bills out of cash flow but we run about a $6,000 monthly surplus which makes that doable.

[srblanco7]

We get a paper bill in the mail. School taxes in August and property taxes around January.

We're on roughly the same schedule. In addition, our insurance bill (auto and home) renews in August. We save monthly to a money market and then pay these bills in full when they come due.

[Like2Plan]

We do the same as you do. We have a fund that covers insurance and also small household repairs and maint. items.

[LivingAlmostLarge]

Cash flow. I have a large EF and from there i pull out whatever overages happen and replenish it as needed. I tend to let it grow from say 6-12 months then send it off to invest.

[frugal saver]

Ok, the comments about the school taxes were scary. I know when I pay my homeowner's property tax, there's line items in it that go to the schools and the park district, but no where near that much.

I haven't (myself) paid property tax in over 10 years now, but when I did I used to get Certificate's of Deposit that would come due a month before the tax was due and pay them that way. If interest rates are good enough, it makes sense, since you're paying part and the bank is paying part. Now I'm required to take an inherited IRA minimum distribution every year and I just withdraw enough to pay the property taxes.

For other yearly expenses, I have several used-to-be-high-interest online savings accounts, and just keep adding bits and pieces every month to make sure everything is covered.

[HundredK]

I like keeping sinking funds for all those sorts of things. Which is essentially what others here are reporting doing... you save incrementally from each paycheck/month/whatever cycle works for you, and by the time it's due, the money is sitting there to pay it. I like separating it out from the emergency fund because things like that aren't emergencies, they're just infrequent expenses. So I have sinking funds for most everything (travel, medical expenses, large bills paid annually). And at a glance I know at a glance how much of my savings is for true emergencies and how much is simply slotted for future expenses.

Fun fact: while the term sinking fund is now used pretty commonly to describe this type of incremental saving, it originates from the idea of bonds. When a company issues a bond, they float it. As they accrue to make bond payments, they sink it.

[mumof2]

we do the same but call it a POM account (peace of mind) we stick all our annual and quarterly bills in the budget figure it out over 12 months and depisot that much each month into that account each year we also add another 10%...but I am old school and also have a budget written out...so each month when I pay our bills I see what if anything is due that month out of that account and pay it...works for us

[myrdale]

I paid property tax a couple of weeks ago, $1,200. Home insurance roles around in June, $600 IIRC, and vehicle insurance is about the same. In each case I just cut a check and pay them.

I could understand someone opening up a separate checking account and maintaining $2-3k in it at all times, specifically for these type of charges, and just budget $200 or so per month to go towards it. Like others said, I save enough month to month, I can take the hit and never notice it.