As the South gets hit this week with snow, prompting widespread panic and oil slowly retreats from its all time high, today's Arizona Republic has a great story with tips on how to save on your electric bill.You likely know many, if not all, of these tips, but we thought the list was worth linking to although we still are not being into the notion that the economy is on the brink of recession. Still, electricity is expensive and folks with electric heat are really getting walloped.
We have a couple of quibbles with the Republic's list. For example, consumers are urged to "Enroll in a plan that averages consumption over the year, taking the seasonal swings out of electric bills." That idea often gets a lot of play and makes many financial planners recommendation lists. We don't like the idea for the same reason we don't like 15 year mortgages.
With proper financial discipline, consumers should not be paying more for electricity during because they do so at the peak. We're not thinking about some super-nifty pre-purchase of electricity at a locked-in price. We're thinking of the bill that runs $100 every month except for two months when it runs $200.
Under that scenario, a consumer pays eight $300 invoices ($2400) and four $600 invoices ($2400) -- a total of $4,800 for electricity in the year. Some financial planners and almost all utility plans urge consumers to pay a monthly average and may even offer a one time incentive to do so.
That is an awful idea. In our scenario, the consumer pays $400 each month. The notion is that the sting of the $600 bills will be mitigated. That's the same silly notion that causes consumers to overpay their taxes, giving the government an interest free loan, so they "get" a refund in the spring. Such plans simply cost your money.
To optimize your financial situation, plan separately and create a budget for each month. Save the extra $100 in an interest bearing account or some other way until its time to pay your utility bill. There is no reason to overpay a company for convenience.
The same holds true for a 15 year mortgage. Don't lock yourself into a higher monthly payment. Make sure you don't have a pre-payment penalty and then start paying down your mortgage every month. In that month where the kids needs braces, the washing machine breaks and you happen to have a $600 utility bill, that extra cash flow might help you.
The smartest thing to do right now to cut your heating bills? Make sure your home is properly winterized (no cracks, gaps, drafts, etc.) with storm windows where appropriate. Then have a good quality HVAC (heating and air conditioning) contractor check your system. Older systems are less efficient and can cost you more money. Don't fall for an automatic upgrade, but don't bury your head in the sand by thinking you can get away with if it ain't broke, don't fix it.
Check with your local utility. Many offer programs that let you buy new energy efficient appliances at discounts or even provide loan programs for them. If you can't pay cash, and the utility savings justify the cost, go ahead and take a loan. Your utility or credit union may even offer a low cost loan.
But whatever you do, don't pre-pay your electric bill. Pay bills (not loans, bills) when they are due, not before.
Labels: financial, saving money, utility
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