Thread: Virtual Escrows

Hello and thank you reading.

My name is Patrick, and I am just some guy that started his twenties thinking he knew everything, and started his thirties knowing he knew nothing. I am a husband and a father, and I’ve caused my fair share of credit card mayhem. I’m posting this article today, entitled “Virtual Escrows,” to describe to you, the faceless cyber public, how my household budgets for non-monthly expenditures. This is just one strategy that we have been using, in concert with others, to pay down debt, be on budget, and become responsible adults. Our “Virtual Escrow” method is annoyingly simple, but I was quite surprised to see such a lack of the idea when searching the internet for budget strategies.

“So, faceless internet dude, stop babbling on and tell us about your probably stupid and totally overblown escrow thing.” So, what is an escrow? I always heard of escrow when referring to my mortgage, but never really understood it. To me, it is what pays my taxes and my insurance. As I became swamped in financial ruin, I became much more in tune with those financial matters affecting me. Once I understood that an escrow is simply a savings account with no interest, held by my lender to insure that their investment had its liabilities paid, I realized that this strategy could be used for anything!

So, you take your estimated payment of whatever good or service is in question. You determine how many months there are before you have to pay your bill. You divide your estimate by the number of months, and that is the amount of money you have to put away each month to be on target. “Duh!” But wait, there is more! If your estimate is too low, and you actually owed more than you though, you pay your bill, estimate for next time, then add the difference between the old and new estimate into your future payment. “This guy is an idiot.”

Let me give an example:

Hypothetically, I have an automobile that has an insurance policy of around $200 every six months. So, today I have a bill for my insurance that is $219.43. I pay my bill. I make a note that six months from now, I will owe another $219.43. I make a note that $36.57 of my savings account each month is earmarked for my car insurance. In six months, I know that $219.43 of my savings is for my car insurance, but when my bill comes in, it says $232.98, for whatever reason. I pay the $232.98 and transfer $232.98 from my savings (which is $13.55 more than I planned) to my checking. I make a note that in six months, I will owe $232.98 again. I also note that I owe my savings a deficit of $13.55. I break that up over six months, which would be $2.26, and I add that to my new monthly estimate of $38.83, for a total of $41.09 a month. Rinse and repeat.

“I’m totally not going through all this hassle. This guy is making things overly complicated.” Perhaps you are right! All I know is that I have been up to my eyeballs in confusion, uncertainty and fear, but today, after planning out every non-monthly expenditure with my “Virtual Escrow” strategy, I have never felt more confident about the state of my finances. I am never caught off-guard by any unexpected bills. My Christmas money, birthday money, anniversary money, whatever I want, is always there waiting for me when it comes time to cash it in. My life insurance, my car insurance, my termite bond, even my driver's license every four years, whatever might come around, is always paid on time, with no fuse, no mess and no stress.

Thank you for your time. Are there any questions?