Yesterday was a beautiful day here in Oklahoma. Aside from being a little windy, the sun was shining, the temperature was perfect and I got to work outside in my rose garden. I love spring for so many reasons. I love the signs of life everywhere, my roses budding, and the whole world going green. I love that my children get to play outside after being sequestered for the winter. I love the excitement and anticipation as summer approaches. And I really love that my utility bills drop to nothing because we don’t have to run the air or the heat and we don’t have to water the plants yet because it rains so much. It’s the simple things 🙂
Seriously, one of the most confusing issues that people have with setting a budget is, “How do I know what to budget when my bills vary so much?” In the winter your gas bill will typically be high and then drop to nothing in the summer (unless all of your appliances run on gas). It can be a challenge to know what to budget for when your bill can fluctuate by more than $200 if you have a large home. So here is what has worked for my household, and some ideas that have helped others with their budgets as well.
This is where it is really helpful to have the last 12 months of statements or be able to access them either online or by a phone call to the company. The first step is to take the last 12 bill totals and add them together. Divide the total of this by 12 and you will have your monthly average. However, it is always better to budget too much than too little and in the months where your bill reaches $150, you will struggle if your average is only $70 and that is all you have budgeted.
There are several ways to compensate for this. First of all, you can budget your bill at the top side of your bill (at $150) and then in the low months (when it is only $30) just put the difference into your savings plan. This is a great plan if you have lots of flexibility in your budget (make a lot more money than your actual bills). However, the average person does not have this flexibility, so this plan can be very difficult for them because that is an extra $120 that they are unnecessarily putting aside each month. Your bill will only be that high one or two times a year, and many people need that money to live the rest of the year.
A second plan is to budget your bill half way between your average bill and your highest bill of the year. That way the majority of your bills will be covered by your budget, but maybe two bills a year you will need to draw from your savings to make up the difference. The third plan is to budget your bill at the average bill and start a savings plan just for that utility. Each low month of the year (months with the lowest bill), you would take the overage in your budget (the difference between what you budgeted and the actual bill) and put it into a savings account so that money is there when the bill is in the high months. This third plan requires a lot of discipline to not spend the extra money when your bill is low, but it is definitely do-able. I will discuss savings plans in detail later, but I currently have five savings accounts open which I use both to manage our money and to save for our dreams.
Another idea for managing your variable bills is to take out the variation. Many utility companies offer fixed rate programs, in which they take the average of your last 12 months of bills and that then becomes your fixed bill total. They do have to adjust it each year for rises in cost of gas, electricity, etc and for your actual usage, but they should only adjust it once a year. Many companies will also refund you the difference if your actual usage is less than what they have charged you over the course of the year.
I have used all of these plans over the years, but I have found that the easiest is to allow the utility company to average my bill for me. If that is not available, I now do a combination of the second and third plan. My budgeted amount is between the high bill and the average total and when the bill is at its lowest point I will put that money in savings for the two months when that bill is high. Most of the year I have enough to cover the bill and I don’t constantly have to be micro-managing the money. There is also the factor that when my electricity bill is at its highest in the summer, my gas bill is often very low, so I can use the surplus from my gas to pay my electricity.
Regardless of what plan you choose to use to set your budget for your utilities, it is very important to have a plan. Try to think through your personality, the flexibility level in your finances, and what is available to you through your bill company. These factors will help you determine which plan will best fit you and your family’s needs. Having a plan in place for your utilities means that you will no longer have to worry about your bill totals from month to month. Instead, you will be free to sit back and enjoy the weather, no matter what season you are in.