A Simple Way to Budget for Highly-Variable Utility Bills

by Travis Pizel · 52 comments

They show up in my inbox during the first week of the month, usually just a few days apart. When I see them, I pause and whisper, “Please, please, please, let it be low!” over and over again. With my mouse pointer hovering, I close my eyes and open my electric or natural gas bill for the month.

It’s a lot like playing the lottery.

When I open my eyes, I hope the numbers fall in my favor. The lower the number, the easier it is to pay them. But living in the Midwest, we have a saying: “If you don’t like the weather, just wait until tomorrow.” Conditions can change quickly, as can your utility bills. All it takes is one summer heat wave, or one of those polar vortex things to cause the bills to skyrocket.

I’ve finally had enough of playing the utility bill lottery.

The key to being successful with a budget is to properly identify your expenses each month — which is hard to do in the wonderful climate of Minnesota. My natural gas bill shoots up during the winter months as we heat our home, but declines to almost nothing during the summer. My electric bill skyrockets during the air conditioned summer months, but cuts itself in half during the winter months.

By following these four easy steps, however, I’ll finally be ready to handle any utility bill.

1. Collect your history

I signed onto my accounts for both my public utility company (which includes electric and water), as well as my natural gas company to collect the last two years of historical data.

2. Calculate the total monthly utility bill

I entered the amounts for each bill into a spreadsheet by month, then added the values together to calculate each month’s total utility expense. I found that my monthly utility bill for the last two years ranged from $227 to $488; you can see how such a wide range would make utilities hard to budget for.

3. Calculate the average total

Adding all of the monthly amounts together gave me the total I spent on utilities over the last two years. After dividing that total by 24 (the number of months), I discovered that my average utility cost per month was $331.

4. Make an action plan

Now that I know what my average is, I know what to budget each month. If the total of the two bills is less than $331, the extra goes into a newly opened “utility bill slush fund.” That way, if they happen to be more than the average, I’ll know exactly where to get the money.

It’s a perfect time of year to start this process, as my historical data indicates that March, April, and May enjoy some of the lowest utility bills. I now have time to stash money away in my slush fund before the hot summer months roll in — along with higher electric bills.

Do your utility bills vary dramatically with the seasons? How do you account for that in your budget?

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{ 52 comments… read them below or add one }

John @ Sprout Wealth March 27, 2014 at 7:20 am

Lol, I loved your lottery line! We deal with the same thing here in Omaha, especially this year and the crazy weather we’ve had. We’re actually on a level payment plan with both of our providers so we get charged the same amount each month. They’ll increase it if need be, but only on an annual basis. We usually build up a fairly nice credit with the electric provider so that’s not an issue really. The gas bill though…is another story this year. ;)

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David Ning March 27, 2014 at 10:21 am

How do you build up a credit with the electric provider? Is it some type of a prepayment plan where you pay first and then use up whatever you’ve already paid? Any advantages to that as opposed to paying after the fact like another other normal utility bill?

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Travis @debtchronicles March 27, 2014 at 5:35 pm

Usually the way it works is they figure out the “average” of your bill over the year, David, and thus you overpay during part of the season and build up a “credit” and then use that credit during the months where the bill would be higher.

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Rich March 29, 2014 at 11:56 am

Hi David. Here in Cleveland weather fluctuations are as severe as most Midwestern cities. Instead of signing up for a budget plan with the utilities I usually pay extra in the off season months to build up a credit on the account. When the bill is higher than the average the extra funds are deducted from the credit balance. This allows more flexibility within my utility budget.

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David Ning April 1, 2014 at 8:25 pm

Ahh I get it now. Sounds like this arrangement works for you, which is awesome.

I was going to suggest a separate savings account to accomplish the same goal but the interest will be puny and having access to it is too tempting, so keep doing what you are doing!

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Travis @debtchronicles March 27, 2014 at 5:34 pm

I’m glad you mentioned the “level pay,” John….our electric company offers a plan like that, but our natural gas company does not. So, even if we did the level pay for our electric, our gas bill still would vary wildly by the season. So, I figured it would be easier just to combine the two myself and pay the average. We’ll see how it pans out!

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Phil March 27, 2014 at 8:10 am

Great article. The large bills that used to come in during winter and summer used to really create a stress. Since being on the Dave Ramsey plan we have gotten out of debt and created an emergency fund. Now when the large bills come in our budget is much more capable of handling the large bills. It is easy to pay a $300 heating bill when you don’t have a $300 car payment. And during the months of low utility bills (Spring, Fall) it is just gravy as we have plenty of extra room in our budget.

One other small note: many utility companies will average out your expenses, and then bill you just the average each month. This gives you a steady number to budget with.

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David Ning March 27, 2014 at 10:23 am

Congrats on not having that $300 car payment! If only our society can realize how much those commonly accepted expenses are actually costing them!

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Phil March 27, 2014 at 11:17 am

Thanks. As a school teacher, it is nice to actually have a surplus of money at the end of every month. Recently saved up and bought a boat too. Fishing, waterskiing and tubing…here we come. And a great way to save on a boat? Pay cash.

But we sacrificed to get where we are. Honestly, we have not done much the last 10 years. But we lived like no one else so that someday we could live like no one else. The rest of our lives are going to be great.

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David Ning March 27, 2014 at 1:58 pm

Congrats. I love this one from Dave Ramsey “If you will live like no one else, later you can live like no one else”.

Absolutely!

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Phil March 27, 2014 at 2:03 pm

Yes. And “People will make fun of you, which means you are doing something right. Because being broke in America is normal.” Good stuff. Now that I am able to buy things that I have saved up for it is going to be fun. And in 20 years when I have over 3 million dollars and I am retiring before the people who made “fun of me”, well, you get the idea.

By the way, it was all good teasing. I am not scarred for life. But if I was, I could afford the therapist too.

David Ning March 27, 2014 at 2:34 pm

That’s the attitude!

Speaking of “being broke” as the norm, it doesn’t’ just apply to the middle class. Here’s an interesting article I just read today about the high end:

http://nypost.com/2014/03/23/scotts-suicide-reveals-tragic-side-of-citys-glitzy-scene/

Travis @debtchronicles March 27, 2014 at 5:37 pm

You’re right, Phil, that it does make it easier to pay larger than usual bills if you have that kind of financial freedom – and we’re finally getting to that kind of ability now that our DMP is complete. However, at the same time, I like to have a pretty good idea of what my bills are going to be each month, and I like to have them as close to the same as possible. I’m a little Type A like that. :) This sort of system allows me to do that. Congrats on your success with the Dave Ramsey plan, people that really sink their teeth into it really seem to do well!

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Kate March 27, 2014 at 8:34 am

I live in a part of the country where one is guaranteed a very high heating bill over an elongated winter season. Having moved here from Atlanta, where the summer temperatures could be 113 degrees with 100% humidity, spring, summer and fall in this part of the country are comfortable with no air conditioning and little need for heating. (We are not permitted to use space heaters in our building.) I have an annual budget for heating, which I use generously from mid-October until the end of May, and after that I have a very minimal bill for a couple of fans. Knowing in advance pretty much what I shall spend, and refusing to be cold, has allowed me to properly budget.

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David Ning March 27, 2014 at 10:27 am

Good idea on the fans. Turning on a fan is so much more efficient than turning on A/C for the entire house just because you need to cool one spot, and 98% of the time it’s just as pleasant!

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Travis @debtchronicles March 27, 2014 at 5:38 pm

I love how you budget that far in advance, Kate….the more you look ahead, the better you can plan, and the better off you’ll be!

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David Ning March 27, 2014 at 10:12 am

Our utility bills are much lower here in Southern California, but they still fluctuate quite a bit. There’s an option over here to actually have the utility company smooth out the bill for you.

I’m not sure the exact formula they use, but they will get your history and then bill you pretty much the same amount each month (after they know the monthly average) to help you stay on budget. And as far as I know, the service is completely free. Perhaps you can look into whether your company offers the same thing?

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Travis @debtchronicles March 27, 2014 at 5:40 pm

That sounds like the “level pay” thing that John described above…and as I mentioned in my response my electric company offers that, but my gas company does not. Thus my total utility bill would still fluctuate with the season. Some part of me envies you for the nice weather (relatively) year round…but then again I love the variety of seasons too. :)

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David Ning March 28, 2014 at 9:11 am

You should move here. If your gas bill is anything like Alex’s $500 ones, you might as well come to Southern California since the higher utility bills more than make up for the super-sized mortgages!

I miss the seasons sometimes too but I definitely don’t miss shoveling the snow! Pros and cons my friend. Pros and cons :)

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Alex @ Credit Card XPO March 27, 2014 at 12:01 pm

My gas bill for last month was almost $500! This winter is way too long in NY. So saying my utility bills vary dramatically with the seasons is an under statement. I’m thrilled that Spring is finally here and can’t wait for some warmer temperatures.

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David Ning March 27, 2014 at 1:59 pm

I don’t know what the norm is around the country but a $500 gas bill is madness!

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Alex @ Credit Card XPO March 27, 2014 at 6:57 pm

After doing some investigation, apparently my meter reading 2 months ago was estimated and that bill was about $200. So my average for past 2 months is about $350 which is still very high. Opting for balanced billing may be a good idea!

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David Ning March 28, 2014 at 9:12 am

Are there really no ways to reduce the bill? Do you leave it on when no one is home? How about adjusting the temperature lower at the middle of the night? There’s got to be some way to lower this bill!

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Phil March 27, 2014 at 2:07 pm

Probably high taxes because you live in New York City.

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Travis @debtchronicles March 27, 2014 at 7:36 pm

Wow, that is a monster gas bill!!! I live in Minnesota, it’s been abnormally cold, and ours was about $260. I can’t imagine a $500 bill for Gas alone….But that’s exactly why I want to do this “averaging” thing so that I can plan for those high months!

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JMK March 28, 2014 at 5:59 am

We only have one utility – electricity. It’s used for the usual stuff, plus being in the country we have a well with a pump, so it’s sort of also our water bill. We have a ground source furnace (heat pulled from ground water in winter, heat put into the ground water in summer) and the fan/well pump is all electric powered. If the temperature drops so much or so quickly that the furnace can’t keep up, the backup system is straight electric. All that to say we have only one bill but it can be enormous here in our part of Canada when we’ve had the coldest winter in 20yrs and it’s still going strong when we ought to be seeing signs of spring. Our March electric bill was over $1300, yes $1300 not a typo. On the other hand our summer bills will likely be around $300. I track the monthly amounts and have a little table built into my spreadsheet showing the past 7 years. When I lay out the annual spending plan I put an estimated amount in for each month (from $300 to $1300) and as the actual amounts come in I update the spreadsheet. When an extra $1000 is going out for electricity it just means there will be less “excess” in the account to transfer to our retirement savings or make an extra mortgage payment. In months were it’s only $300 we make a lot of progress on net worth. We could opt to have equialized billing to smooth out the payments though the year, but since we can cover the big bills within our budget, I’d rather manage it myself so that in the low months all the extra is going toward our investments rather than building up a credit with the power company for use later in the year. If you run a very tight budget for any reason and wild swings in your utilities cause stress then equalized billing is the way to go. We used this method for the gas billings in our first home as newly weds because the previous owner had set it up that way and we just took over the same arrangement. We must have kept the temperature way lower than they did, because at the end of our first year we had a huge credit and weren’t billed for nearly 3 months. They adjusted our monthly billing amount down to reflect our usage so we only had a partially reduced bill one month a year to use up the credit.

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David Ning March 28, 2014 at 9:18 am

$1,300 a month… wow. Are there opportunities to upgrade your furnace so it runs on gas? Or what about solar panels? At $1,300 every month, a ton of different technologies must start to make sense. I would totally start exploring this route because $1,300 after tax and going up every year is like paying for a $300,000 30-year fixed mortgage!

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JMK April 1, 2014 at 12:18 pm

We live just beyond to suburbs and there is no natural gas in our area (sparsly populated, rural and on solid rock), plus in the past few weeks the 3 natural gas providers for Ontario just had increases of between 28-40% approved by the government, so even if it was available I’m not sure it would actually be any better. Our alternatives are oil, propane, solar or I suppose wood. I’d rather not go down the oil path as I feel that’s old technology (plus messy, environmentally questionable, and also expensive here). We have some neigbours using propane, but this winter with the extreme, prolonged cold there were issues with supply and at times you simply couldn’t get it delivered to your giant tank(s) beside the house. Solar is possible in the milder climate parts of Canada although not supper effective in our area due to the length of winter and the very reduced hours of sunlight we get. Plus we’re in a wooded area so the sun hitting roof panels would be further reduced. Many people have an airtight wood stove to suppliment whatever heating system they are using, but unless your home is very small it would be impossible to use this as your primary heating source. Living in a residential rural environment puts us in the minority so our issues certainly don’t apply to everyone. For people urban areas, natural gas is the default option, but when you live just a little further out it suddenly becomes the wild west for utilities. Annually we average about $7500 total, or about $625/mth. I don’t know how that compares to someone here who has an electric bill, plus gas/oil/propane. We may not be a lot worse off, it’s just that it hits you all at once. We’re still waiting for the other shoe to drop – an increase to electricity rates of ~40% is making it’s way through government approvals so this only gets worse.
Just to add insult to injury that $1300+ electic bill for last month, was actually about $670 for the electricity and the rest is the fee to deliver it to the house, taxes, and my personal favorite, the mandatory charge for “debt reduction” on the infrastructure investments made by the electricty company to maintain/upgrade/expand the network and power generation facilities.
I’m trying to sell my DH on the idea of downsizing when our youngest heads off to college/university. Even with the mortgage paid off in a couple of years we’ll still have the $7500+ electricity bill and the $5000 property taxes. We can rent a perfectly nice 2brm apartment for not much more and pocket the equity. The apartment would be a radical lifestyle change but at this point being free to travel extesively in early retirement is a lot more appealing (to me at least) than being anchored to the home which now feels like an albatross.

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David Ning April 1, 2014 at 8:29 pm

Downsizing is a great idea, but you already know that the idea can be a tough sell. I wish you luck in this though because those who successfully get rid of their oversized homes will be able to increase their lifestyle in other areas SOOOO much that it’s crazy not to even consider the move.

And speaking of move, could you actually relocate to a more urban area? I know this again sounds much easier on paper, but those utility bills alone can more than pay for a higher cost of living in other spending categories.

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Travis @debtchronicles March 28, 2014 at 8:26 pm

Wow, $1300 a month, that IS crazy! I live in MN, and we have some high utility bills, but nothing like that! But as usual, JMK, you’ve got it all under control. Is that amount “normal” for other people that live in your area of Canada too??

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David Ning April 3, 2014 at 1:01 pm

I used to live in Canada and that amount is not normal. $500 maybe but not $1,300. Of course, we lived in the suburbs of Toronto, which is actually relatively urban.

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Syed March 28, 2014 at 9:19 am

Ha that’s exactly how I open my electric bill emails. I started adding an electric bill and water bill “fund” into my budget, so I know I will have enough to cover the bill. I do enjoy turning the thermostat down when I see the bill is higher than I thought.

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David Ning March 28, 2014 at 12:57 pm

I enjoy turning the thermostat down even if I don’t see a higher bill!! Can’t say the same for my wife and kids though :)

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Travis @debtchronicles March 28, 2014 at 8:26 pm

I like to play a game called the “thermostat Limbo” during the winter where I gradually turn the thermostat down. I turn it down one degree, then let everyone get used to it for a week or two. Then I do it again. :)

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David Ning March 29, 2014 at 9:08 am

Haha is this a stealth game where no one really knows about this until they are going through polar vortex without any heat at all? :)

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Slinky March 28, 2014 at 11:07 am

The utility slush fund is a good idea if you can’t cash flow the higher bills. I just base my utility budget for that month on prior year’s expenses for that month and round up a bit from the record high. Using the highest amount means I’m almost always pleasantly surprised when it comes in lower and have a little bit of extra cash to pad out the budget anywhere I might have gone over a bit.

I would rather plan for the worst and be pleasantly surprised than overly optimistic and be disappointed and scrambling for cash.

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David Ning March 28, 2014 at 2:15 pm

It’s always better to be conservative in planning, because no one will ever be caught off guard this way. Otherwise, a little short fall will mean borrowing at high interest rates, which starts that downward spiral we are all too familiar with.

That’s why we are on a mission to educate the public about the money basics, as some simple changes can create a huge difference through time.

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Travis @debtchronicles March 28, 2014 at 8:28 pm

There’s more than one way to handle the varying utilities….I personally (even though I now have the cash flow to handle varying bills) like to have my expenses be relatively the same each month – by evening things out this way, it just makes planning easier for me. :)

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Rob March 31, 2014 at 12:48 pm

Here in Maryland, my 2 utilities offer “budget” billing. We pay the same about each month. Once or twice a year the companies adjust it up or down to reflect the new averages.

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David Ning April 1, 2014 at 8:32 pm

This cost smoothing definitely seems like a great idea, but I wonder if it will inadvertently make us use more electricity/gas etc. I mean, I didn’t sign up to have the utility company smooth out my bill but I know that in summer months, my electricity can be double of what I’m used to paying so I take extra precautions to conserve.

If I’m just used to paying the average bill, I might not have the same drive to reduce.

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Rob April 2, 2014 at 7:19 am

I was worried about that too. But the Budget bill also shows the actual use and how much $$$ worth was used. Plus it shows if you have a credit or debit with the utility. So, so far It hasn’t been a problem. I still walk around the house telling the kids to turn off the lights and turn down the thermostat

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David Ning April 2, 2014 at 9:28 am

Running around telling kids to turn off lights is exactly what I do, though my kids are only 4 and 1 so it’s not like they can truly grasp the reason I ask! :)

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Travis @debtchronicles April 3, 2014 at 5:15 am

Luckily, my kids are now old enough where they not only understand the concept behind turning things off when they’re not using it, but also that doing so will save money and allow us (as a family) to do more things. yay for kids growing up….at least in that regard. :)

Christina April 1, 2014 at 8:51 am

I enrolled for a budget for both our electric and gas utilities. I like paying the same amount each month throughout the year, so no surprises in the winter when the gas bill can shoot up or in the summer when the electric does because the air conditioners. I do keep the heat as low as I can in the winter, turn off lights, etc. Whatever I can do to save money, but I do like the monthly budget for utilities.

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David Ning April 1, 2014 at 8:34 pm

Lights being turned on when no one is in the room used to bug me to no end. But now that I have a 4 year old (and a 1 year old that will soon be able to turn on lights), I have given up being frustrated! :)

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Travis @debtchronicles April 3, 2014 at 5:16 am

Coolio that both your electric and gas utilities offer that service , Christina….only my electric company offers it in my area. Thus the reason I needed to take some action!

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Property Marbella April 3, 2014 at 2:19 am

Rent a thermal camera and walk through the house and find all the small heat thieves that leaking your warmth, you will save a lot of money this way.

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Travis @debtchronicles April 3, 2014 at 5:16 am

Wow, Property Marbella….I’ve never heard that suggestion – it’s a bit extreme, but I bet it would work!

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Paul-Wesley Bowen May 8, 2014 at 8:49 pm

Thank you for the article on utility bill binges. A bright spot for Californians, PG&E has offered all those who qualify (i.e., have been customers for a certain period of time) a budgeted plan where they add up all the bills and give us a fixed payment per month. My first five months, which was as they told me a set amount, but on the sixth month, they did the “recalculation” and because I had not used quite as much energy as the actual amount of money I sent on the bills, I was billed only a half payment for that month. It is really great to not have to worry month to month re a budget.

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Travis Pizel May 9, 2014 at 4:16 am

That’s great, Paul-Wesley….does that include all your utilities (water, gas, electric)? Glad to hear it’s working out for you!

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Ray August 7, 2014 at 8:03 pm

I added up the last 12 months of all my utilities and devided by 12. This was after i tried to apply for the budget plan on my utilities and was informed that it was the “wrong time of year” and how I should sign up next year. I sent in my average to each utility and my heating bill went into the red by over 200 dollars, I recieved a few notices about that, but after the second notice the weather began to change and I was able to catch up quickly. I began recieving notices to sign up foe budget plans, and having been onmy own budget plan I didn’t see the need, but I read all the paper work involved. I was shocked to read that I pay them and when I cancel or close the account, if I owe them any money I was expected to pay them, but if they OWED me any money, they would KEEP IT ! I stopped reading and decided to keep to my own budget plan. Another provider offers me the opportunity to sign up with their plan, after paying a sign up fee… Still on my own budget plan. I have been doing these plans for a number of years and have had a surplus on each one of the accounts, which I have taken out when they reach $100.00. I still find ways to trim my bills but being on the budget plan, my own plan is the best. When I enter the high bill season of the utility I go into it with a surplus, it’s awesome to see the bill say “pay nothing”.

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Travis @Debtchronicles August 11, 2014 at 3:11 am

If you want it done right, you have to do it yourself, right Ray? That’s too bad that they charge to put you on the budget plan……there’s no such fee in my area. Looks like you have things under control, though, keep it up!

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