How do you categorize short term savings?

[jk70]

every month i transfer $$ into an "escrow account" that is used for short term savings. mainly theses are things that i pay once a year instead of monthly (like life insurance) but save $$ on a monthly basis.

so the way i have my excel sheet set up i receive income and pay part of that out as escrow. the escrow account is part of my savings category so I treat "savings" as an expense in my budget. when it's time to pay an escrow bill, I have the money deposited (transferred) back into the checking (it actually looks like income coming in on the spreadsheet which I just realized is wrong) but I don't credit the escrow account (on the spreadsheet) that I originally took the money away from. I have a life insurance category that gets budgeted and that's where this is now reflected. hope this makes sense, sorry if not. but my question lies here:

to keep the numbers simple, let's say i pay 200/month into the escrow account, which is savings, and my life insurance bill is 1200/year due in august. to still keep it easy let's say i pay nothing more out of the escrow account. so do you look at savings (as a % of income) as 2,400 per year/income for the year? - this is how I have been doing it. the problem lies in when I pay a bill. so in this scenario i saved 2400 per year but paid out 1200 for life insurance; therefore my savings % is 1200/income???

I ask this because like I said before, on the spreadsheet the monies coming back from escrow do not get tagged to the escrow account so it does look like I save the whole 2400...but all savings eventually gets spent in our lives so maybe none of its savings

[Gardening Grandma]

I do something very similar. Each month I transfer $850 into what I call "reserves". In quicken, it's set up as a cash account (not savings). On a separate excell spreadsheet, I have the categories that "reserves" covers (prop tax, ho ins, emer vet fund, vacation fund, etc).
When I use the money from reserves, I transfer it to the checking (or cc) account and in notes, indicate which category it came from.
I don't know if that answers your question, but I never consider it "savings". It's just money reserved for future expenses.

[Urban Chicago]

I use a similar system. Deposit the money in a traditional savings account, then back to checking when I know I'll spend it that month.

If we have a good amount left over after Christmas, I transfer that to the long term account.

[floridayankee]

DW and I do this as well. We each transfer $150/week to our Escrow account to pay for RE taxes and insurance for our home, 3 cars and a motorcycle. Every year I'll transfer any "extra" to our EF. So far, the $150/week has covered everything and then some.

As far as what I call short term...that would be our mortgage payment. We each 25% of the mortgage payment into an online savings account every payday and send it to the mortgage company on the 24th of every month.

[The J]

I don't count the money going to the escrow account as savings. So my savings goals are X, and the money for the escrow is a monthly bill

[floridayankee]

Jan 27, 2011 9:58:24 GMT -5 The J said:

I don't count the money going to the escrow account as savings. So my savings goals are X, and the money for the escrow is a monthly bill

Why not? Sure it will eventually be used to cover a bill, but in the mean time, it would still be savings, would it not? Our excess that is transferred to the EF is long term savings.

ETA: To clarify, we do not escrow with the mortgage company. DW and I pay our annual taxes and insurance from what we saved in our online Escrow savings account.

[jk70]

I don't count the money going to the escrow account as savings. So my savings goals are X, and the money for the escrow is a monthly bill


see, that's where I get confused about it. In theory, all that we save is going to get spent, just some now and some later.

Therefore, is everything I put into my escrow account savings (the gross) or is the % of savings the net of my escrow account?

[The J]

I should clarify -- on my networth statement, I classify it as cash-on-hand. Excess that gets transferred to savings becomes savings then, but I'm generally pretty on point with how much I'm putting aside (I do escrow my taxes, but I'm not talking about that -- I referring to my "escrow" savings account for my non-monthly bills).

[teppe2]

I don't categorize them at all even though I transfer the money into a different account. If it is used for a particular purpose then it is a bill to me. Savings are what I put away with no idea what it will spent on.

I don't really have a budget, I track all my expenses so some months I have a large plus, others I am in the red. As long as I am in the black for the year I am good.

[DVM gone riding]

I classify it as "short term savings to spend" and "long term savings" that isn't to spend unless the roof falls in. To separate it from retirement savings and savings for other investments.

My current acct keeping system that tracks all of my accts calls these things "transfer in" and "transfer out" transactions until I actually spend the money on something rather then just move it between accts.

[boosmom]

For something that's an annual bill, I wouldn't count it as savings at all. You wouldn't count it as savings if you paid the bill on a monthly basis. But, that is a quirky thing that may be difficult to account for the software/system you use.

Unless you cancel the bill that you intended to use the money for. Then it would be savings since you no longer have the bill.

For our mortgage, our company includes escrow in our payment, so it'd be a similar concept. I don't count the money in the escrow account as savings since it will be spent. But, it is true, most of the short-term savings will be spent. It's just a matter of when.

I'd count your savings rate as $1200/income, since there is no specific timeframe to spend that money. If you do spend the other $1200 every year, then maybe you're not really saving money at all? maybe you just don't incur any debt and live within your means...

[jk70]

boo's mom:

but, in theory, someone who saved 10,000/year for 5 years to then put a down payment on a house or buy a Porsche; couldn't that be counted as the same thing -- not really savings b/c it does get spent?

i'm not looking to make myself look better in the savings dept., but if I save $$ now for any moment in the future, whether that be tomorrow or 20 years, that should be considered savings, correct?

I guess in the end it doesn't matter b/c I do have a tab that follows my net worth on a monthly basis where I put all assets and liabilities in. The escrow account is part of that so if I deplete some it will just reflect a lower amount.

[boosmom]

but, in theory, someone who saved 10,000/year for 5 years to then put a down payment on a house or buy a Porsche; couldn't that be counted as the same thing -- not really savings b/c it does get spent?

Unless they continue to save $10K a year after the home purchase/Porsche, then it does get used up. If your NW increases after you spend the savings, like with the house, it doesn't really matter, just a transfer from one type of asset to another type. The Porsche, unless it's some kind of classic model, they still depreciate.

Savings rate is really just for your own personal validation (and YM posting ). Doesn't really matter in the end b/c what counts is do you have enough saved to buy/achieve what you want. If you aren't taking on new debt to do so (except a mortgage or some business loan that will bring huge ROI), then it's all good. I "save" for retirement, but I plan on spending that savings later on. I only track that to ensure that I will have enough saved up to start spending it when I retire.

I really don't calculate our savings rate outside of retirement contributions pretty much because of this "save to spend" conundrum. I don't have the time to fiddle with all the figures and %s for those motivational kicks. I used to do it, but not so much anymore.

I guess in the end it doesn't matter b/c I do have a tab that follows my net worth on a monthly basis where I put all assets and liabilities in.

NW is always a good thing to track though.

[gsbrq]

I classify short-term savings as anything I'm going to spend within the year...and personally, I don't count that money as "savings" because it's really just living expenses that you incur at greater-than-monthly intervals.

So my basic budget categories are

Savings:
401k & Roth
Taxable long-term savings

Spending (or "living expenses"):
Cash allowance
Deposit to checking account (for mortgage & other monthly bills)
Deposit to short term savings account (for medical & vet bills, vacations, clothes, etc)

[wodehouse]

wow! I do the same thing as the OP. I "escrow" about $24,000 a year out of 24 payrolls. Excel worksheets keep track of multiple sub-accounts in the escrow to cover insurance, property tax, medical/dental expenses, auto repair, gift funds, vacations, reserves for home repair...new roof, air con, water heater, etc.

So in my checking account Excel worksheet the "escrow" shows as a debit; in the "Reserves" worksheet it shows as a credit (I recently changed the name from escrow to reserves). When I have one such expense then it gets debited from the Reserves worksheet and credited to the checking account register, and an actual check or EFT is performed.

[DVM gone riding]

wodehouse: I think that makes perfect sense. Its all in the syntax. I personally like "saving" to spend ideas so I disagree with Boo's mom, but sense we decided on another thread that the purpose of all money was to be spent do we really ever "save" anything?? I think any time you have more money in the bank at the end of the month then you did at the beginning of the month then you are doing well.

[phil5185]

I agree with the others - you are mixing 'escrow' with savings. The escrow fund contains the annual, semi-annual, quarterly expenses - xmas, birthdays, vacation, car tags, car insurance, umbrella insurance, life insurance, dentist, etc - things that are expected.

(BTW, what kind of life insurance costs $1200/yr? A typical 40 yr old pays about $00 or $500 for a $1,000,000 30-yr.)

As for 'savings' other than a EF - do you want that classification or have a purpose/goal for it? In my case, I've always invested
any income stream above and beyond the monthly bills and the escrow. We keep a small EF but we don't regularly add to it, except for replenishment after an incident.

[jk70]

Phil:

I already have an EF, Vacation Fund, Roth, Taxable investments, 529's, blah, blah, blah which gets funded monthly (except EF, already funded) along with the escrow account....Escrow is my 1 year or less (to an extent) once a year bills. It also holds my car maintenance, car savings, property taxes, etc. as well as the life insurance, car insurance and so forth.

I solved the problem by just calculating the escrow minus any escrow $$ that comes back into the checking account and consider the remaining savings.

The $1200 was just a number ($100 per month) to keep the example simple. I do pay 970/year, though thru Fidelity Life Insurance. This past summer I went to a few other places (genworth, liberty, etc.) and got quotes that were higher what I pay now. Recently, though, I have received some quotes that are less and will be looking into those.