I recently came across an article on setting up a Personal Escrow Account (PEA) to manage non-monthly budgets. After reading the article, I realized that I had actually done that to deal with the property taxes on our two places.
Imagine that, I had set up a PEA without even knowing what it was or the benefits. I was familiar with the term escrow account in my dealings with real estate, but not actually having one, I didn’t give them much thought.
Turns out, I had inadvertently put one together.
So, what is an Escrow Account?
Most often tied to a mortgage, an escrow account is set up to make not only the mortgage payment but also the insurance and property tax payments. The mortgage payment is determined by the lending agency, the insurance payments by the insurance company, and then the property tax payment is based upon the current evaluation.
After these payments are determined a monthly amount is determined which is then deposited into the escrow account, which is usually maintained by a third party. The mortgage payments are paid monthly, as might be the insurance payments. Sometimes those are paid quarterly out of the escrow account. Property taxes come due at one time per year.
With an escrow account properly set up, the necessary funds for these payments are identified, then put into a system to make the payments. This eases the burden for the borrower.
How Can a Personal Escrow Account Help With Budgeting?
Some time back, around 2006, I had to figure out a way to account for property taxes each year. Somehow I blundered into putting together my own Personal Escrow Account. We had recently built a house and moved 330+ miles from where we had been for years. In making this move, we decided to keep our old home and lease it to our kids.
With that, we now had two places to deal with mortgages, property taxes, and insurance. The mortgages and insurance were easy, as we had monthly payments. The property taxes not so. Since we had moved, we had to set up local bank accounts, but I decided to keep the old accounts as it made it easy for the kids to deposit their lease money.
The old accounts, a checking and a savings account, became the Lease House accounts. I set up an automatic transfer to the savings account to cover the property taxes on that house. I still blundered a bit with the new house, keeping up with money for the property taxes.
One day, out of the blue, I decided to start using the Lease House account as an escrow account, depositing money for the property taxes on our current place, as well as the lease house. Since those accounts are out of the town we live in, we’re less likely to dip into them. The checking account allows me to write checks for the two places and it really makes things easier.
My Personal Escrow Account has provided me with an easier system for keeping tabs on the property taxes. Little did I realize that a PEA can be used to deal with other non-monthly payments.
Expanding My Personal Escrow Account
Now that I’ve learned more about how others are using PEAs, I’m looking into putting mine to better use. We’ve got several other bills that we pay here and there through the year, such as:
- Propane Bill– Living in the country, we get propane trucked in. How often it’s delivered depends on the weather. I’ll look back out our past two years worth of bills and get an idea for a monthly amount to deposit.
- Motorcycle Insurance– I pay my motorcycle insurance once a year, so I’m going to divide the amount by 12 and start depositing that money into my PEA.
- Vehicle Registrations and Inspections– In Texas, our vehicle inspections are now tied to our registrations, and we have several that have to be taken care of each year. Some months, more than one.
- Annual Pest Treatment Services– Each year we have the pest company do an inspection and treatment on both houses. I’ll divide the amounts by 12 and start putting that money in the PEA, too.
- Annual Conference Registration Fees – My wife and I attend a few annual conferences each yer and this year I’ll be attending FinCon. We’ve already paid for this year’s conferences, but I can see putting money in the PEA for those in the future.
So far, these have come to mind but I’ll bet there are other spending categories that will benefit by using a PEA.
Right now, I can think of Christmas and Birthday gift expenses. We have a set amount that we give the two kids and their spouses, so I can divide those expenses by 12 and put that money away, too. Although we don’t have annual membership dues, that’s another category that a PEA is suited for. So many possibilities.
Don’t Just Take My Word for It
As I mentioned earlier, I learned about PEAs after the fact. It’s not my idea, but I think it’s a great one. Others do too.
You can learn how others have taken advantage of personal escrow accounts by checking out these articles:
Create a Personal Escrow Account for Your Quarterly & Yearly Bills
Your Personal Escrow: The Ultimate Budgeting Hack
A Personal Escrow Account Can Provide Peace Of Mind
Using a Personal Escrow Account to Deal With Quarterly Bills
Or course, when I set up my PEA I had no idea that I’d done just that, but I’m glad I did. I think the PEA is an awesome budgeting tool and plan to expand mine. How about you?
Do you have a Personal Escrow Account? If so, how do you use it?
Great read! In one of my recent posts I discuss this, as well. I didn’t realize there was a name for this, so I’m glad I now have something to call it.
We also have ours set up for property and school taxes. We also do this for our car insurance payments because it makes it easier.
One thing I think is important to mention, is doing the personal escrow account, rather than escrowing with your mortgage broker, allows you to earn more interest on your own money. With a personal escrow account, you have the ability to put this money in a high yield savings account, or wherever else you’d like to put it, because you are the one in control of it.
Hey, Courtney! Thanks for the shout out and the compliment.
I thought it interesting that you and I recently wrote about this topic. You’re right about setting up one’s own escrow, as it allows more flexibility in increasing earnings. Same as setting up one’s own IRA. Shame 401K’s aren’t the same.
Wow I never thought about setting up a personal escrow account but it makes a ton of sense!!! I can definitely see how it would help with budgeting and it’s definitely something I’m going to do in the future!!! Thanks for sharing!!!
I had know idea what I had done until I read an article somewhere. I’m looking at what else I can add to our PEA. Glad you found the article of use.