Utility bills – recurrent

When I started creating budgets, I used a simple technique to help cast a new monthly budget: I applied what happened last month and used the same figures for the next month! This was a very lazy approach to forecasting, and soon I discovered that some expenses changed depending on the season. Seasonal expenses or costs are expenses incurred that differ according to the season. Throughout the cycle of a year certain seasons, such as the hotter or cooler months, will exhibit higher costs for certain items than other tepid months. To help you better prepare your budget each period, there are some seasonal expenses I have discovered that you might want to be aware of so that when they hit your forecasting period you're better prepared for the changes. Here are some examples, and some basic principles behind determining whether something is seasonal. Expenses Based On Temperature Changes The reason why some expenses are labelled as seasonal is because they are incurred with changes to the temperature in our climate. A classic example of this is heating and air conditioning. In the cooler months we want to keep warm, and in the hotter months we want to keep cool. Therefore, in the cooler months we all turn our heaters on, and in the summer months we turn our fans or air conditioning on. The effect of having these devices on is that our electricity bills fluctuate throughout the year depending on how hot or cold it has been throughout the month. By analysing my monthly electricity bills, I can see the effect our electricity costs have been over the last 2 years (this is when I started paying bills monthly): SummerAutumnWinterSpring$113.32$106.76$207.83$81.23Average monthly electricity bill over last 2 years As you can see the electricity costs in our home differ greatly between winter and spring, by over 155%! Another popular utility bill also affected by the temperature is our gas bill, which we use predominantly for heating the water for our showers, and on the stove top in cooking. When analysing this expense each season our average gas bill costs over the last couple of years have been are as follows: SummerAutumnWinterSpring$176.13$166.54$242.94$249.88Average quarterly gas bill over the last 3 years And the data here makes sense, in the warmer summer and autumn months you're not spending as much time under the hot shower, or cooking hot meals, but as you enter the cooler winter months the hot showers are longer and the meals of choice are warmer. But again, we have variation, and as much as 45% here! I decided to one more test on another utility bill to see if I see the same type of changes during the seasons, and this time it was the water bill: SummerAutumnWinterSpring$320.32$329.49$341.55$327.73Average quarterly water bill over the last 3 years As you can see from the above table not all utility bills will fluctuate with the seasons, in the case with our quarterly water bills they are pretty much the same throughout the year with a minor increase in the winter months. But I never would have known this fact if I didn't analyse it myself to see. Budgeting For Climate Change How do you budget for these differences in your electricity and gas bills? One method I use with our own personal financial budget is having annual lines for each season. As our gas bills are paid quarterly I create a line item for when the summer bill is due each year for a specific amount, $180, and then set that to recur every year forward. I then do the same for each other season in the year: I set the time when I pay that bill, the amount, and the recurring nature to annual. The same is also done for the electricity bills, but as I pay my electricity bills monthly, it means there are 12 lines for each that recur annually. I'd imagine most people would be paying their bills quarterly as they do for gas, and therefore the set up above with gas would be similarly applied to electricity. When it comes to our water bills, as you can see from my analysis on our bills over the last couple of years, I don't apply any seasonal variation to this item. And I'd encourage you to do the same to all your utility bills to see if there's any point in applying different amounts according to the season - as some might not have any great seasonal affect! Expenses Based On Holidays The other type of seasonal change you will notice is when you take holidays. Most people prefer to get away during the warmer months, whether that be in the northern or southern hemisphere, and during the Christmas and New Year periods. Thankfully, for Australians in the southern hemisphere Christmas and New Year is in the warmer months of the year! It's during these holidays periods where you will tend to find additional expenses due to the break, things like: Travel - flights, taxis (etc)Eating out - restaurants.Entertainment - attending venues, seeing the sights (etc)Accommodation If you want to avoid incorporating the extra spending in your standard budget you could create another budget specific for the trip. Just copy your standard budgeting spreadsheet, and remove all the lines, then for the period you're going away enter the expected costs. Then, once the trip is over, you can look at the actual costs and compare how you fared with what you budgeted. During your trip away you might also find other expenses are impacted, you might want to reduce these costs in your standard budget depending upon how long you're away for: Groceries - as these are weekly costs, you might be able to reduce this to zero and put all expenses on the trip into the holiday budget;Utility - as you're not home, there shouldn't be any electricity or gas costs, unless you've got somebody house-sitting your place while you're away;Transport costs (fuel, tolls, etc.) - if you frequently travel to and from work, being away you won't incur these costs, so you could reduce these line items in your standard budget. Budgeting Tip For Trips There are a couple of ways when budgeting for these seasonal variations that I have tried over the years, and I've found the choice has been somewhat dependent on the amount of money spent on the trip, and its longevity. Whenever we've been away for any more than a week I tend to create a separate holiday budget for the trip. Or, if the trip is short, but will be a pricey one because of the cost (flights, accommodation, etc) I also will keep things separated. By budgeting separately, I can keep my standard budget free from any modifications and edits for these one-off events, and can monitor things easier when the expenses come through. Apart from a separate budget another way I've incorporated other smaller trips into the budget is by inflating some of the usual suspects, such as our Eating Out or Fast Food lines. Knowing that for a short weekend trip we'll be spending more on food, I add another one-off line to increase what may have already been provisioned for the month. Summary Seasonal expenses are a type of classification for your expenses to help categorise your budget lines better. While seasonal expenses can be predicted based on climate, another type of seasonal expense not so obvious is when you're taking a holiday throughout the year. These holiday periods are seasonal only because they tend to occur around the same time each year, especially with common festivities like Christmas and New Year's Day. To budget well during these seasonal times, do an analysis on each of your bills over the last couple of years and see if there is any variance between your seasonal bills. If there is, enter separate lines in your budget for each season and its corresponding bill, and repeat the frequency of that bill every year. This will help you forecast better into the future with these types of expenses. Besides seasonal expenses, another type of expenses that could affect your budget is irregular expenses, or even multi-year expenses click on the links for each to read more.