One Money Design

I pay my own taxes every year for our home. Some people may tell you it’s easier for your home lender to pay your taxes so you don’t have to remember to save for them each month. I guess the thought of having someone else earn interest on my money, even if it’s a small amount, doesn’t sit well with me.

How I pay my own home taxes

Therefore, I’ve made the choice to take my estimated taxes for the year, divide by 12 and save that money back each month. Yes, it does require some amount of discipline, but I transfer the money into a low risk money market account and forget about it until tax time. I do the same for our house insurance and homeowner’s association dues. No, it doesn’t make a lot of money each year, but I guess over time, it adds up.

Are you saving enough to pay your home taxes?

Here is a friendly reminder for those of you paying your taxes. If you recently received the county’s estimate for your home taxes this year, it’s time to do a quick check to make sure you’re putting enough back to pay your tax bill on – time and in – full at the end of the year.

Here are some quick steps to follow to make sure you’re on track:

Let’s assume your home tax estimate was higher this year.  Pretend your new tax estimate = $1200 and last year’s taxes = $1000.   So, you’re currently saving about $83 ($1000/12=$83.33) per month to pay your taxes at the end of the year.

Steps to calculate your home taxes

1. Take new estimate and divide by 12.   $1200/12 = $100.
2. Subtract your current monthly tax savings amount from new monthly savings amount.  $100 – $83 = $17. That’s how much shortfall you need to make up each month from the first 6 months (you haven’t been saving enough) of the year.  In other words, you have a total of $102 (6 X $17) to catch up or you’ll be short when your bill arrives in the mail at the end of the year.
3. Finally, add your new monthly tax savings estimate to your monthly savings shortfall ($100+$17=$117). Your new monthly tax savings = $117.

When you’re ready to write your check for next year’s taxes, you should be pleased with having enough tax savings to pay your bill; and you’ve earned some money in interest for the year.

Other guidelines

1. If for some reason your home value decreased and your tax estimate is lower, take the extra money and apply to savings or debt reduction.
2. I figured the exact amount you needed up above to cover your taxes for the year. I suppose the county is just providing an estimate. Therefore, you might increase your monthly savings by $10 – $20 to avoid surprises.

I hope you found this helpful and a friendly reminder to stay on top of your savings for your yearly home tax bill. This is one surprise we can avoid with some quick planning.

Can you think of any other tips or advice that might be helpful for others? Please share your thoughts?

Related Posts:

• Budget busters: How to save money and control spending for housing
• How to File for the First-Time Home Buyer Tax Credit (Also For Repeat Buyers)