Apr 24 2008

Make installment payments to yourself

When my husband and I first started paying our own car insurance, we could only afford the payment schedule that had us make five or six monthly payments. We simply didn’t have the $400 or so to make a one-time insurance payment.

Now that we’re making some financial headway, we’re starting to save money to make annual or bi-annual insurance payments.

If you aren’t planning on spontaneously selling your car and relying on public transit, then you’re going to be making car insurance payments for as long as you have a car.

Rather than send the insurance company a check each month, why not pay yourself the monthly amount into a high-interest savings account and then pay the balance in full?

Doing so will keep your overall expenses as low as possible, while allowing you to earn interest on your money.

For example, our next car insurance premium is $366 for a six-month period. If we made monthly payments, due to extra fees we’d pay $65.05 each month for six months, for a total of $390.30. That’s $24 more!

By comparison, if I put $61 in my ING Direct account each month ($366 divided by 6), six months later, I’d have the full amount and I’d earn about $3 in interest at its current rate. That would bring my overall savings to $27 every six months (if my two policies were identical).

I like “paying myself” with my ING Direct savings account because I can create sub-accounts to easily separate my money.

The same tactic can be used for renter’s insurance and many life insurance policies as well. Look at your policies, and if making more payments costs you more money, you can benefit by making those installment payments to yourself.

It can be difficult at first to pay your current premiums AND put aside extra so you can pay it in full someday. But, once you get to the point where you can pay a policy in full (or in two payments), if you keep on making monthly payments to yourself, you’ll have the full amount in due time, and come out ahead in the long run.

One final thing: Some people are uncomfortable tying up their money with a one-time payment. If your money is really tight, I can understand that apprehension. Still, try to work toward eventually making one or two payments instead of six or twelve in a year.

Remember, if your car insurance policy is paid in full, then you won’t have to send that company a check for another six months.

7 Responses to “Make installment payments to yourself”

  1. Thank you for your good Ideas!!!!!!!!!!!!!!!

    abismart’s last blog post..Oferta Alerta

  2. We do this not only with car insurance and registration, but all sorts of things we need to save for… if we know over the course of a year, between birthdays and weddings and Christmas, we want to spend $400 on presents for friends and family, we put aside money every paycheck into a ‘gift fund’. This way, we don’t have a huge credit-card bill come January, and we have a set spending plan when shopping season comes around. The money’s already in the bank!

    We’ve done this to buy a riding lawn mower and a desk, as well as to budget for vacations and other large purchases. I’d rather make payments to myself beforehand than make payments plus interest after a big purchase/expense!

    joanna’s last blog post..What I’m planting this week

  3. Another bonus is that a lot of auto insurance companies give a paid-in-full discount. I think our insurance company’s discount for paying in full is 10%. A good deal!

  4. I have been doing this for about a year now. I earn interest on my insurance premiums and save the monthly extras :)
    Good advice!

  5. This is exactly what I will do with a few bills, once months start steadying out a little better.

    Monthly incomes tend to vary wide sometimes :-)

    Dennis Edell’s last blog post..You CANNOT Link Away From An eBay Auction! Or Can You?…..All Legal Too

  6. I really like not having to worry about it as often. Fortunately we were able to do an annual payment on the renter’s and 6-month on the car. We should start saving now for the June payment….

  1. 1 Trackback(s)

  2. Roundup and Link Love - Brain Surgery Edition | The Wisdom Journal

Sorry, comments for this entry are closed at this time.

Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

Keep in Touch!
Like me on Facebook Follow Me on Twitter RSS Feed

Subscribe to my email updates:

Web Statistics