Most utility companies have budget plans in place for those of us who would like to pay the same amount each month, year round. For my entire adult life I’ve allowed the utility company to manage this for me using their budget payment plan, but a couple of years ago we were switched to a different company out in the rural area where we live and I decided to start managing this myself.
In fact, I believe it was a commenter to my blog that suggested it, and I thought this would be the ideal time to start. It makes sense… I am certainly capable of handling it, since I manage my sinking funds, and this way I can earn interest on the money, instead of the utility company.
It is helpful when your utility bill is the same amount throughout the year when you are living paycheck to paycheck. Otherwise you could end up in a spot like an acquaintance of mine who now cannot afford to run the air conditioning in her apartment during the summer.
Add Up Your Bill for the Last Year, Add 10% and Divide by 12
The utility company explained that the way they do the calculation is they add up your bill for the last year, then add 10% and divide by twelve.
I made a guesstimate based on what we’d been paying to the previous company and I’ve been setting aside at least $340 every month, regardless of how much the bill actually is. I’ve been paying the utility company the amount that is due, and then I’ve been pushing $120 to a savings sub-account at ING Direct.
Here are the bill amounts for the last twelve months. Before you gasp in horror, please remember a few points:
- We live in the Arizona desert where temperatures rise close to 120°F.
- Ours is an all electric home: electric stove, electric water heater.
- We use a timer on our water heater and heat the water only during critical times as necessary.
- We take advantage of the Time Savings plan through our utility company and attempt to use the bulk of our electricity during off peak hours – which is a bit difficult since the hours are 9pm to 9am and weekends.
- Someone is home 24 hours a day – meaning we cannot do as some people and turn the air off for 10 hours a day while they are at work.
- We keep our air conditioning unit no lower than 78°F during the summer in the daytime and we rarely turn on the heater during the winter. We do lower the temperature to 76° during the night hours when the rates are lower.
- Three of us work from home several days each week, using electrical equipment: computers, power tools.
- We cook 2-3 homemade meals each day, this cannot be done between the off peak hours on weekdays.
- July 2011: $381.17
- August 2011: $458.25
- September 2011: $439.52
- October 2011: $347.68
- November 2011: $222.08
- December 2011: $189.20
- January 2012: $213.68
- February 2012: $207.37
- March 2012: $140.96 (this was an extremely short cycle 20 days)
- April 2012: $214.67
- May 2012: $313.34
- June 2012: $325.87
The totals for the last twelve months comes to $3453.79. 10% is $345.38.
The total of the electricity usage, plus 10% comes to $3799.17 and divided by 12 equals $316.60 each month. I have been over saving by approximately $25 each month. That’s okay, I like having a little bit of padding in case the electricity bill should go higher for whatever reason on any given month. Due to the fact that Mr. A does some of his work here on our property, which usually means using power tools and therefore, electricity, it could be higher at random.
Now the trick comes in figuring out how much money should be in my savings account right now, to cover us for the summer months. I’m budgeting about $340 each month. Here are the amounts I’m estimating to see for the upcoming bills – last year’s amount, plus 10%:
- July: $419 (-$340 = $79)
- August: $504 (-$340 = $164)
- September: $483 (-$340 = $143)
- October: $382 (-$340 = $42)
So by my calculations, I should have $428 in my electricity savings account to ensure that we will have enough money to pay these bills each month, in effect creating my own budget payment plan.
I happen to have $851 in that particular sub-account. As I mentioned, I have been setting aside $25 more each month than need be, and it looks like I also did not retrieve money from this account to help cover last summer’s bills once or maybe twice. I will probably leave the money there for the time being. I am also considering using $200 to pay toward some credit card debt.
Do you participate in the budget plan with your utility company, or do you manage your own? Or do you just pay the bill each month as it comes?