My first contact with the word escrow accounts was in real estate transactions, an account held by a third party until certain contractual agreements have been met. On my financial intelligence journey however, it’s a word that features big time. I’ll need to quickly establish what an escrow account is, how it can be set up within the context of personal finance management, the benefits derived from same, and some makeshift escrow options you might wish to consider.
What is an Escrow Account (Source)
An escrow is an arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money and/or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfillment of contractually-agreed conditions by the transacting parties, or
an account established by a broker, under the provisions of license law, for the purpose of holding funds on behalf of the broker’s principal or some other person until the consummation or termination of a transaction;
What do you Need one for?
In my attempt to help myself and help so many other people to work deliberately towards financial freedom, I realized that the greatest tool, that we can use to create assets of significant value is our monthly cashflow. This monthly cashflow is the difference between our monthly income and our living expenses. If the expense is greater than the income, this is living on the brink of bankruptcy. If they are equal, then things will remain the same. The place to be is where the difference between the income and expense is significantly positive. For the few of us that manage to have anything left monthly however, we keep our money’s where we can access it, and before we know it, we are living true to Parkinson’s law! Our expenses rise up to meet our incomes! I realize that the only way to ensure that the monthly cashflow is being put to good use, is to create an escrow account where each couple can be accountable to a third party on the use of the funds in their escrow accounts.
It’s rather unfortunate that the greatest enemy of progress towards freedom is not real enemies, but close friends and family. The demands keep mounting until your monthly savings are gone. Except you have funds that are yours, but you don’t have access to, chances are you will continue to live on all that is meant to be left. The escrow account creates a habit forming process of keeping your money away from yourself, paying yourself first and not going back to loan it out.
Benefits Derived from an Escrow Account
With an Escrow account you have ensured you don’t have money to manage emergencies. You will soon realize that every problem has solutions outside you. The fact that you are unable to meet a need, does not mean the need won’t end up solved. You need to spend within the confines of your budget, and hold yourself to a contractual agreement to keep money away in an escrow account.
You can begin to build cash assets, strictly towards building real assets. You can have a sense of progress and confidence derived from knowing you are on track, and heading towards your dream. Trust me, there is no feeling quite like knowing that you are moving closer and closer to your desired end.
If you can always access the funds in your escrow account, you don’t have an escrow account!
How to Set up an Escrow Account
To set up an escrow account, simply open a new account in a new bank, with your spouse as co-signatory. You can work with a coach or accountability partner (I have some people trained to assist you at little or no cost, I can as well at the right price) to set up guiding rules, and ensure that money never leaves the account for frivolous reasons. This way you can continue to grow your cash asset until you can participate in a big deal. I currently have a lot of checks with me from people who open their bank accounts and just deposit the booklets with me.
You can also use a cooperative account as your escrow account. Avenues to Wealth Cooperative Multipurpose Society for example can serve as an escrow account. To put money into the account is easy, but to get out your share capital would required 3 months and to withdraw your savings about 1 month. This is done deliberately so that your cooperative funds are not serving emergencies and putting out fires, but building you a solid financial background and basis. With money in share capital alone, you already have an asset which can generate bi-annual dividends.
So, you can see quite clearly what an escrow account can do for you. Now that you know, how long will it take you to start? Once you start, you can buzz online here and let me know. I’ll see what level of support I can give you. Hearing without doing, is a sure way to ensure that when the challenges of life comes your way, you may find nothing to match them with.