Monday, August 20, 2012

How to budget for energy costs

In order to effectively set up a budget in these bad economic times, it is more important than ever to develop and maintain a budget that works for you. Chances are, you already do this. You know how much your credit cards and other bills run you – they are normally fixed amounts (or minimum payments). So you can devise a budget based on those numbers.

But unfortunately, a lot of budgets don't take energy costs into account. The biggest reason for this most homeowners give is because of the price fluctuation. They can estimate and try to make sure enough money is left over in the budget for energy, but because they don't know how much energy will cost them month to month, it is all but impossible to figure out and budget effectively.

Ironically this is one of the reasons why many utility companies offer budget payment options. A budget payment option averages energy usage for the previous months, and takes into account last season's usage as a barometer for this year's usage. A number is then calculated, and this is your budget payment. If you start using much more than they predicted, the cost goes up.

There is a problem with these budget payments – they tend to go up much more than they go down. The reason is the utility company's budget calculator is flawed because it doesn't take environment nor predicted climate into account very well. For example, a poorly insulated house will use over 25% more energy than last year if the temperature is a few degrees lower on average. Thus budget payments will increase.

The other flaw is most utility companies simply will not let you go on budget payments unless you are "current" with your account. This is a problem because many people want to go on budget payments when their bills are too high, can can't pay them all at once. There's no point in going on budget payments if the energy company makes you pay your high bill before they give you assistance.

So, to budget for energy, you either have to be on a fixed price energy payment OR be able to predict your energy usage per month.

The second option is completely possible…if you know how energy is being spent in your home…and how much energy is being used!

Ordinarily, this is a rather difficult process that involves quite a bit of math. Luckily, now there is an easy way.

You can use the cost workbooks in the DIY Energy Saving Kit to estimate your energy costs in a given month. Or if you choose, you can simply average out the costs per year to get a monthly figure and multiply this number by a factor to estimate your payments, depending on your area.

The first option: Finding your monthly payments

Walk through the house and do a complete energy audit. This is important because it will identify all your energy needs and when done correctly, identifies how energy is used throughout your home. Plus, the numbers you derive from this step will determine your bottom line energy costs! Full instructions on how to do a complete, professional energy audit are included in the DIY Energy Saving Kit.

Next, plug in the usage numbers into the cost workbook. Be sure to separate daily use appliances from occasional or seasonal use appliances!

Now since you're doing the audit during a specific season, say summer, your current estimations will be accurate for the season. So if you say you use your lights 4 hours a day, assume the everyday you use your lights 4 hours. Look at the billing cycle/monthly column. This is your monthly cost per appliance. And if you look at the electricity worksheet, you'll see your cost per billing cycle (or month).

If you repeat the above with the occasional use appliances, then add the two costs together, you'll have an accurate representation of your monthly energy costs.

Here's the cool part. Once you have the data, you can just copy and paste it into multiple workbooks and estimate your costs across all months or seasons! Once you have the data in, save the workbook, then make a copy of it. If you want, make 4 copies total (one for each season). Name them something like "spring – energy cost workbook" or something like that, replacing "spring" with the season you estimate.

Open each one, and change the usage numbers according to usage by season. The monthly costs you come up with represent the monthly payments you can expect based on the appliances you have in your house and how you use them. (Ignore yearly costs, as they don't apply.)

You'll also find more detailed instructions on this method, plus screenshots, within the DIY Energy Saving Kit itself.

The other option using the workbook is to use the calculator, as is, and take the calculated monthly cost "fudging" it by a factor depending on usage by season or month.

So, let's say on average your electric payment is $140 per month as determined by the calculator. You know that in winter, your payments are higher than that and in summer, slightly lower (even with a/c). The $140 is your starting point. Simply adjust that figure higher or lower arbitrarily or using math:


We assumed that our electric costs are 20% higher in the winter. If you repeat for the summer and assume that costs are 15% less:


Of course, you can also "fudge" the numbers a bit to give your budget more room and assume larger percentage increases. The key is your starting point, the monthly cost. And you can get this accurately from the DIY Energy Saving Kit


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