I have a property tax bill to pay annually. To make this less painful, I transfer some to savings every month to cover it. I have the monthly expense budgeted as a “tax” category, but track the transfer as a “transfer”. So every month I’m zero in “tax”, but when I pay the bill I’ll be 12x over budget in “tax”. This doesn’t seem right…
Maybe I should do it the opposite way, track each month as “tax” even though it’s not leaving my accounts, then the big payment as “transfer” so it’s not hitting my budget twice?
I do the same thing. I transfer 1/12 the total annual tax amount per month from checking to a Home Savings Account (property tax and home insurance). I categorize the debit from checking as Property Tax and Home Insurance (two separate automatic transfers setup on the first of each month for each category). The incoming transaction on the savings account side is simply a transfer. When the actual annual tax payment comes out of savings, I just do it as a Transfer.
Cool, I think I’ll do that too. My monthly transfer is a rounded amount and the actual payment is precise, so the transfers won’t all add up, but it’s close enough.
I’ve been using a third option that relies on the Savings Budget:
Set the “Taxes” category track column to “Savings”
Budget each month for 1/12th the projected annual total in the category “Taxes”
(Optional) If you transfer tax savings to another account monthly, categorize both the outgoing and incoming transactions as “Transfer”
When a payment comes around, categorize it as “Taxes”
The way this works is that, with the Savings Budget, the unspent budget from each month accrues as Savings, and contributes to the available amount in the month when any taxes are actually paid. This has a few nice properties:
It’s closer to accurate cash accounting; it only recognizes a tax expense when cash for taxes leaves your account
With the accrued savings, the value that matters isn’t whether a tax payment exceeds the Taxes budget amount in the month it’s paid, but rather whether the tax payment exceeds the Taxes available amount when it is paid
If the tax payment is less than the Taxes available amount, the Savings budget shows you exactly how much is left, making it easy to reassign to a different budget category or use to adjust future tax savings. Alternatively, if the tax payment exceeds the available amount, you can reallocate from another budget category just like anything else.
My only dislike about this solution is that the Savings Budget does not reconcile to cash, meaning you need something else to show whether you actually have the cash in some account(s) that the savings budget shows. There are a couple of templates I’ve seen, like the Savings Goal tracker, which works if your savings amount for any given category is held entirely in one account.