Holidays Give This Family Something to Escrow About
By Albert B. Crenshaw
(c) The Washington Post
Sunday, December 10, 1995; Page H08
For millions of Americans, year-end holidays are the season of wonder -- they wonder how
they're going to pay for it.
But for Martha and Dave Rosenberg of Lake Ridge in Prince William County, the season holds no
such mystery. Thanks to Martha's system of creating what she calls "escrows" within the family's
accounts, the Rosenbergs enter the holidays with cash on hand equal to what they expect to lay
out for gifts, decorations and related expenses.
The Rosenbergs have been using the system for about 10 years, Martha said, and have extended it
to other large predictable expenses such as car insurance, vacations and taxes.
They have been delighted with the results. Their finances are under control, there is no ghastly
credit card bill in January, and they earn interest rather than paying it out.
"There's nothing like getting a big bill, paying it out and not feeling like you have less money that
you had before," Martha Rosenberg said.
Holiday gift-giving is hardly simple at the Rosenbergs'. He is Jewish, she is Methodist, and their
son, Aaron, 11, and daughter, Kimmy, 6, are being brought up Jewish. A couple of birthdays fall
late in the year.
The key to the system is a sort of false bottom Martha places in the family checking account.
Under that bottom -- the point at which the checkbook ledger shows a zero balance -- she tucks
the escrows for each of the big expenses in the family budget. This includes holiday spending.
She figures out how much she needs by looking at last year's outlays, adjusting for changes -- a
special present for one family member, say -- and divides the amount by 12.
"I put the whole year on the computer. I go back and look at what I spent the previous year and
make adjustments. Maybe I spent less money {than expected} on vacation, or maybe I want to
spend more on gifts. You have to discipline yourself to look ahead," Martha said.
Each month, as Dave's paychecks and her earnings from her home bookkeeping business come in,
she deposits them in full, but records the escrow amounts separately and subtracts them from the
deposit she records.
That way, the money is in the bank, but it doesn't show in the Rosenbergs' general balance.
For example, if she has $100 to deposit, and her escrow calculations show she should put, say,
$12 into the holiday escrow and $13 into the vacation escrow, she records those sums separately
and adds only $75 on her check ledger.
In past years, the system has produced a Sega game system for Aaron and a desk for Kimmy, as
well as a wall hanging for Martha's brother. Next year, if all goes well, the vacation escrow will
fund a trip to Disney World. And, of course, there are more mundane items such as new tires for
the van.
The size of their escrows varies greatly from year to year, Martha said. This year's escrow for gifts
other than to the children is about $1,300. That includes Hanukah, Christmas and birthday
presents for the parents and relatives, friends' birthdays, teacher presents and the like. Gifts for the
children run about another $600.
The system "makes it a little more complicated reconciling the checking account," she said, but she
finds that her home computer and money-management software do the job. And while the
computer makes it easier, she said, "I have done it on paper" in the past.
"I am a bookkeeper, so that's probably why it's easier for me," she added, but anyone who can
add and subtract should be able to do it.
Because of her expertise -- she advises individuals and businesses on financial management --
Martha handles the family accounts.
"It's always better if one person does it," said David. "Otherwise, you have two people going in
opposite directions."
In some ways, the system is like the Christmas club accounts that banks came up with a generation
ago to help customers save for the holidays. Those accounts still exist in many parts of the country,
especially smaller communities, though banking officials say that with automatic transfers to savings
and other such services banks now offer, many people find a specific Christmas account
unnecessary.
The Rosenbergs acknowledge that the escrow accounts could be viewed as nothing more than a
device for hiding their savings from themselves, but they say the discipline the system brings is
tremendously valuable.
Financial planners agree.
"We are strong fans of any method people can devise to help themselves save in spite of
themselves," said Ric Edelman of Edelman Financial Services in Fairfax.
"There are a lot of tricks you can play. You can debit your checkbook yourself, or you can have
your employer debit your paycheck and send it to a {separate bank account} or mutual fund,"
Edelman said. Some mutual funds will yank money out of your checking account automatically if
you authorize it, he said.
He likened these devices to "people who set their alarm clocks five minutes ahead -- who are they
kidding? They know it's fast. . . . But for some people it works."
And, just like the Rosenbergs, "people begin to discover they don't miss the money because they
never had the money," he said.
The savings in turn break a vicious cycle afflicting many families -- going into the holidays with no
savings, putting the presents on a credit card, and spending the following year paying off the
balance, only to start all over again next December.
However, discipline is not the same thing as rigidity, Martha noted. The Rosenbergs don't hesitate
to dip into the escrow accounts if it means savings in the long run.
For example, Martha said she searches for good prices on presents all year long, and sometimes
that means buying something before enough money has built up in the account, so she borrows
from another account, knowing that funds will be coming to repay.
"Nothing's perfect, so it doesn't always work out the way you want," she said. But the system
ensures that "when the time rolls around to buy gifts, it's not an unexpected expense. The money's
there."
The escrows also serve as an emergency fund that can be tapped if necessary, and the surpluses
also guard against bounced checks. "The really wonderful thing is you don't have to be quite so
concerned whether you have money in the account because there's a substantial cushion," she said.
The Rosenbergs boost their return on some of the accounts by shifting the money into short-term
certificates of deposit if it won't be needed for months.
"Because I buy things throughout the year, I wouldn't physically move my gift money out of
checking. My travel money, I might put in a short-term CD, or 12-month no-penalty CD," she
said.
The system has helped the Rosenbergs build their savings "pretty close to that cushion" of three to
six months' expenses that planners recommend, and are now turning their attention toward
longer-term savings.
Profile
Ages: He's 41, she's 38. They have two children: Aaron, 11, and Kimmy, 6.
Hometown: Lake Ridge
Jobs: He's a mail operations supervisor with a government contractor. She runs a bookkeeping
and financial advisory business from their home.
Financial goals: In the short-term, making sure that there is cash on hand to pay for holiday gifts
and other expenses, while building an emergency reserve. Longer-term, they are starting to save
for retirement through their IRA and 401(k) plans.
His long-term goal is a higher lifestyle, while she says her "goal is to achieve security . . . the feeling
I have enough money for my needs and my wants . . ."
Financial strategy: Building "escrows" inside their bank account for holiday gifts and other large
expenses. "We are big believers in paying cash as you go. It's a wonderful way to live, but it's very
hard to get started," she says.
Next big expense: Family trip to Disney World next year.
Most memorable present: "Last year we went together with my siblings and bought my mother a
topaz necklace for her 70th birthday," said Martha Rosenberg.
