Saving Energy Is Making Prices Higher

Credit: Genxfinance.com

Today I would like to talk about a topic that will seem a little strange to most. When you conserve energy, you actually cause the price of the energy you use to go up. I worked for the Public Utilities Commission a while back, and that’s when I became aware of this oddity. To understand why, you need to know a little bit about how utilities work.

In most cases, power providers are monopolies that are regulated by a local governing body. This is allowed because of the massive capital investment that utilities make in order to serve all the customers of the area. It was originally thought that no one else could replace or displace them, so it was necessary to guarantee a profit for them to come into or stick around your area. This idea is currently being challenged at many levels. Regardless that’s the basis for why this works this way.

A utility company is guaranteed to make a return on its capital investment above the cost of interest and taxes paid. This rate is hashed out in a court like proceeding with Economist, Accountants, Attorneys, Engineers and other professionals. Once the rate is agreed to, it goes into place and billing starts happening. The billing is based on all of the usage models and trends provided during the hearings. So what happens when usage changes from the test period? That’s what will explain my first statement.

The utility company will come back for a new hearing down the road to have their rates reviewed again. This time all the customers seemed to have used way less energy. Well that doesn’t mean the return rate will be different necessarily. The return is based on numerous economic and financial data. It could even be determined that it is the same. I will assume that it is the same to further my explanation.

If the return rate is the same, and the amount of capital is the same, the only thing left to adjust is the rate. If you have a lower usage, and you are guaranteed the same return on the same capital, the logic plays out pretty well. You have to charge more to get the same guaranteed rate. So everyone saving energy, winds up making the energy they do use more expensive. This happens in an equally offsetting way. So for every dollar saved today, you will pay a dollar extra tomorrow. This isn’t the whole story however.

There are ten different components to the Nevada energy bills. There could be any number of components in your area. I suggest you take a look at what drives your bill. You may be surprised.

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Swimming in fuel cost? Try the Carpool

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I recently started noticing gas prices going up again, and it made me think about my carpooling days. I drive forty miles to work every day, and then another forty miles back when I’m done. I would like to take today to analyze my current situation and stack it up against the good old carpooling days. Today, I am just a solo driver in a large vehicle.

 

Gas prices are about $2.25/gallon where I fill up currently. My truck gets a whopping 14.8 mpg on average. So the math to figure out my current cost is pretty simple. 80 miles per day X 5 = 400 miles a week. 400 miles a week / 14.8 = 27.03 gallons a week X $2.25 = $60.81 a week in gas. So that’s $60.81 X 52 weeks = $3,162.16 a year. That’s pretty terrible by itself, but it is only going to look worse going on in this post.

My wife and I used to have schedules that matched, and worked in close proximity to each other. We were able to carpool together for over a year. This had two benefits. We split the cost of the gas, and we used her car which gets better mileage. Her car gets 30.9 mpg on average. We can use a similar setup for this. 80 miles per day X 5 = 400 miles a week. 400 miles a week / 30.9 = 12.94 gallons a week X $2.25 = $29.12 a week in gas. So that’s $29.12 X 52 weeks = $1514.56 a year. And I can divide that by two because we split it, so $757.28. That’s 22.37% of my current cost. We used to have three people.

When the three of us were doing the carpool routine, gas prices were at their all-time high. Gas prices were pretty steady at about $4 a gallon. So this just takes a little manipulation of our previous calculation. 80 miles per day X 5 = 400 miles a week. 400 miles a week / 30.9 = 12.94 gallons a week X $4 = $51.76 a week in gas. So that’s $51.76 X 52 weeks = $2691.52 a year. And I can divide that by three, again because we split it, so $897.17. That’s 28.37% of my current cost. Obviously there are multiple moving parts here, which skew the analysis a bit.

Ultimately what you see is that carpooling is going to save you money. It doesn’t matter what the price of gas is, it’s always cheaper when you split it with someone else. The other thing to consider is maintenance. If you split the rides, you do half the wear and tear on your car, and should need half the repairs. Want to do the same comparison? Use a mapping tool to calculate your distance, and the link on prices to do your own analysis.

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Jiffy Scrooge

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I wrote about the cost advantage to changing your own oil in a previous post, but today I would like to talk about a related topic. My wife found a Groupon for an oil change, which happened to be cheaper than we could complete it ourselves. Naturally she took advantage of the offer, but what came next was quite shocking.

The technician returned to my wife while the oil was draining to bring up a couple of additional repairs that she could probably use. Now this in itself is not too surprising, as an oil change is a good way to get under a car and inspect it for issues. The surprising part is the list of items that the technician came up with. Below is a list of the items that were suggested.

Brake fluid was low $15

Coolant was low $20

Radiator needed flushing $99

Serpentine Belt needs replacement $100

Headlight was dim $24

The total bill was going to be about $250 for a $19.99 oil change all said and done. Luckilly, my wife is a smart lady, and didn’t fall for the extra items. The lady in front of her did, and would up with a $485 oil change bill! So I figured I would let you know what it actually cost for all these services on your own.

Low brake fluid – I found a 12 oz. bottle for $3.29, which was more than enough to top it off.

Coolant was low – Well this was just slightly under the “Fill” line, so I would hardly call this true, but a gallon of coolant is $13.99.

Radiator flush – Radiators are full of coolant, so this could really be combined with the item above.  It costs nothing to drain them, it’s a screw cap. A bottle of detergent cleaner is $7.99, and to totally fill everything would take about 2 gallons of coolant at $13.99 each. Total price is $35.97, if this actually needs to be done.

Serpentine Belt – This is what really bothers me. A serpentine belt is $18.99, and takes about 30 seconds to install. What a rip-off!

Headlight Dim – I can buff this for free with an abrasive sponge and some tooth paste.

So if I agreed that all of the items suggested did need to be done, which I don’t, the total to do them myself would be $58.25 plus tax. So that is$62.77 out the door. About 25% of the cost from the shop.

Next time you take a deal on a service at a shop, and they offer you additional items, take a minute to do some analysis before you say yes! You will likely overpay for the remaining items.

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Repayment Planning

In my last post I discussed the various types of student loans, and whether or not you should consolidate your debt. Today I would like to discuss the various repayment options that are available to you. There is the Federal consolidation, which I mentioned would give you the same weighted average rate that you have now. The advantage to this is getting all your loans in one place, with one payment. But there are other options.

Many traditional private lenders, as well as cutting edge finance companies are in the loan consolidation market. The difference going with one of these companies, is the rate you get may be different from the weighted average rate of your loan. These companies take a look at your credit profile, and various other income factors to determine your risk. From that they will offer a rate, which could be higher or lower than the federal refinance rate.

The current market for these types of loans is growing rapidly. Companies are realizing that certain types of borrowers have small risk due to incomes earned by their advanced degrees. Add this to a good credit history, and lenders are fighting over your steady interest payments. If you fall into this category, it is probably a good idea to look into private lenders. Within the private and Federal loan refinance are numerous options.

Credit: tuition.io

You can find fixed and variable rate options. A fixed rate loan will have consistent payment amounts through the life of the loan, because the interest rate never changes. A variable rate loan will have fluctuating payments based on the market interest rate. In a low interest rate environment like todays, I would be concerned about taking a variable rate loan. Interest rates are likely to rise during the repayment period. The repayment periods range anywhere from 5 to 25 years, and can be fixed amounts or variable.

There are a number of variable payment loan options that are driven by income. They allow you to pay smaller amounts at the beginning of your repayment when your income is lower, and higher payments as your income rises. You can find the various types of income based repayment plans at studentaid.ed.gov.

Some types of repayment plans have added perks for government, non-profit, and teaching professionals. Student loan forgiveness programs allow your remaining debt to be paid off at the end of the loan term if you haven’t paid it all by then! Often times these types of employees can wind up paying a fraction of what they owe. Teachers can get up to $17,500 off their debt if they make payments for five years!

The best thing that I can tell you about picking a payment option is, pick one that you can afford. You can always make extra payments, but you get into trouble when you can’t pay your monthly minimums.

As always, if you have a comment or like the post, let me know below.

Student Loan Repayment

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As graduation quickly approaches, I am faced with the task of addressing my student debt. I have been looking around at various options for consolidation and refinancing, as well as various repayment options. I have learned quite a bit about what is available, so I would like to share what I have found.

First off, there are two main categories of student loans. Federal student loans are issued through lenders and insured by the federal government. Private student loans are issued by lenders, and they manage the risk on their own. There are numerous variations of loan types in both categories. If you are just beginning to take on student debt, studentaid.ed.gov has some great comparison information. Since I know I have Federal loans, I will be focusing on them. There are four main types.

• Direct Subsidized Loans are loans made to eligible undergraduate students who demonstrate financial need to help cover the costs of higher education at a college or career school.
• Direct Unsubsidized Loans are loans made to eligible undergraduate, graduate, and professional students, but in this case, the student does not have to demonstrate financial need to be eligible for the loan.
• Direct PLUS Loans are loans made to graduate or professional students and parents of dependent undergraduate students to help pay for education expenses not covered by other financial aid.
• Direct Consolidation Loans allow you to combine all of your eligible federal student loans into a single loan with a single loan servicer.

There are also Perkins loans, which are for emergency financial need. These loans are for exceptional situations, and the school is actually the lender in this scenario.

Since I know what loans I have, the two main decisions for me are consolidation and repayment. To determine if consolidation is a good option, we use the weighted average formula to see where we stand from an interest rate perspective. As a reminder, here is what that looks like.

In simple English, multiply each loan balance by its interest rate, add them all up, and divide by your total loan balance. This will give you a weighted average interest rate. Compare that to the interest rate offered under consolidation options, and take the winner. If the rate is lower to consolidate, do it. If it’s not, don’t. The benefit of consolidating all your loans to one provider doesn’t mean anything if it cost more to do it. The next option is the repayment plan.

Since there are so many repayment options available, I will save those for the next post. For now, take a look at your weighted average rate. The consolidation rate for federal loans issued February of 1999 and later is equal to the weighted average, spoiler alert, consolidation is a good option for most. Here is a chart for people with older loans. I will cover more on this in my next post on repayment options.

As always, if you like what you read or have a comment, please let me know below!

Budgeting Your Time

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Today I would like to talk about a different type of budgeting. In previous post, I have explained how to make a financial budget, but other things can have budgets as well. Basically anything that you have a limited quantity of or a limited time to use can be the basis for a budget. Today, I would like to talk about budgeting your time.

The principles are the same for budgeting non-monetary items as they are for budgeting something financial. First you need to determine your base budget, and then you can add in any additional items that you may have.  The key is to understand what items you absolutely have to account for, and what items can be adjusted. So here is a look at some items I have in my base time budget.

• Sleep
• Work (Including commuting)
• Hygiene
• Eating
• School (Including work outside of class)

Now your base could be different if you have different circumstances. If you have children, for instance, you would need to include time necessary to deal with your children. If you aren’t enrolled in school, obviously that would be removed from the equation. Below is what my base budget looks like.

Time Available = 24 hours a day X 7 days a week = 168 hours to work with.

Sleep – I need and get 7 hours a day to function. So 7 hours X 7 days a week = 49 hours a week.

Work – I work an 8 hour shift, but I also take ½ hour for lunch, and spend 1.5 hours a day commuting.

• So 8 + .5 + 1.5 hours = 10 hours a day X 7 days = 70 hours a week.

Hygiene – I’m a man, and I have very little hair, so I give myself 30 minutes a day for getting ready.

• So .5 hours X 7 days = 3.5 hours a week.

Eating – I spend an hour outside of my work lunch eating every day between breakfast and dinner.

• So 1 hour X 7 days = 7 hours a week.

School – I take 3 classes that meet twice a week between for 1.5 hours each class.

• So 3 classes X 1.5 hours X 2 meetings = 9 hours a week, but for every hour in class, I spend approximately one additional hour on work outside class, so double that gets 18 hours a week.

Now that I know how many hours a week each mandatory activity takes, we can simply total them up, and subtract from the number of hours available in a week.

= 168 – 49(Sleep) – 70(Work) – 3.5(Hygiene) – 7(Eating) – 18(School) = 20.5 hours. This represents the time I have available for anything else.

Now that you have a method for finding your base budget, the next step is laying it all out. I personally use MS Outlook Calendar to do this, but there are a number of tools available to use.

Eat Healthy Save Money

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I hear quite a few people say that it’s just too expensive to eat healthy. The last few months I have been eating all my meals from home, made with healthy items from the grocery store. Prior to that I would go out to eat almost consistently twice a day. My intention behind changing this was for my health, and not for my pocketbook, but I can still look back at the financial impacts of these decisions to evaluate the cost of eating healthy.

Looking through my bank statements I can get a pretty good idea of what numbers to use for my analysis. Now there are huge ranges on what each meal could cost, so I am just looking for some consistent prices in my history. It looks like a breakfast or lunch is around $10, and a dinner is around $15. Forbes has similar figures. Although I didn’t eat out for every meal, to compare to my current situation I will assume I did.

My wife and I budget $150 a week for groceries, and buy food sufficient to prepare three meals a day for the entire week. For breakfast I eat an egg and toast. I already broke down the math behind my chickens in a prior post, so I won’t do that again. I eat fruits nuts and yogurt for snacks, and have a salad or wrap for lunch. Dinner usually contains a portion of meat, and a rice or vegetable side. Occasionally we have some banana bread or other homemade goodies. We are usually under budget, and rarely go over. They key is proper planning.

If my wife and I spend $150 a week so it’s logical that $75 of that is my portion. So a daily cost to feed myself is $75/7 = $10.72. Already I can see this is a winning situation! Even if I ate breakfast or lunch foods three times a day out somewhere, it would cost me $30. We can add $5 total and assume a dinner item would be purchased. So $35-10.72 = $24.28 savings a day from eating from home. That’s 7 X $24.27 = $169.96 a week more to eat out! Annually, you are looking at 52 X 169.96 = $8,837.92 a year extra. Not to mention a couple hundred pounds if that’s what you actually did. So now that you know the facts, I will let you answer. Is it too expensive to eat healthy?

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From the Rear

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Today I would like to use an unfortunate event as the basis for some analysis and insight. I got onto my normal path home from work today, and began to navigate to the necessary lane to make my turn toward the freeway. I looked in the mirror, turned my head for the all clear, looked up, and BOOM! I nailed the car in front of me! The traffic up front had suddenly completely stopped. Shortly after we did the insurance exchange and got on our way, but I couldn’t help but keep thinking of the financial impact this could have on me. Since no one is hurt, I am just talking about the price of repair and insurance, but it could have been much worse.

Immediately when I got home I logged into my insurance policy with Progressive to see what I was facing. I know that having an accident was going to cost me a deductible, and would likely raise my rates as well. I have full coverage insurance, which means that both my car, and the other car are covered under my policy. If you have liability only, your car isn’t covered, but the other driver is. This brings me to my first cost, the deductible.

I discovered that my policy has a $500 deductible listed next to collision, and also $500 listed next to comprehensive, so I immediately stress out thinking I will owe $1000. Luckily, the agent explained that it is $500 no matter what type of accident I have. Collision is when you hit something, and comprehensive is not accident related. So $500 it is. But what about my rate?

I look a little further down the page and see something that says I am a diamond member. This is something they give you after five years as a customer. Among other things, one of the benefits is large accident forgiveness. This means that as long as there have been no violations or claims in the last three years, and no at fault accidents for at least five, your rates won’t increase! So that’s no longer a concern.

Besides a huge pain in the butt getting the car fixed and $500, this really isn’t too big of a deal. It certainly could have been if I had chosen different insurance options though. I suggest you go take a look at what your coverage is and ask your agent exactly how much an accident could wind up costing you.

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Don’t Be a Dipstick

Changing my own oil is just one of those things that I have always done, but I never really thought about whether or not it is cheaper than having someone else do it for me. I got an ad in the mail today for a $27.99 oil change from Jiffy Lube, so I decided to stack it up against doing the change myself. Since this is for an average oil change, I decided to compare it to changing my wife’s oil. She drives an average car, so this would be the price she pays.

What the oil change includes :

Credit: Motorwerkshonda

• 5 quarts of conventional motor oil
• Oil filter
• Labor

I know right away that I don’t have to pay anyone to do the labor for me, so as long as I find the oil and filter for a lower cost, I am good to go. I looked at the ads for my local O’Reilley, and see an ad for an oil and filter combo. Right away I can see that I am going to save some money! The current ad has a special for 5 quarts of Valvoline motor oil and a Microguard filter for $22.99. My state has a sales tax rate of 7.73%, so the out the door price is $24.77.

Just the reduction of labor saves me $3.22 per oil change. The other money saving factor is that I don’t actually need the entire 5 quarts of oil.  I only actually need 3.7, so I am able to save an extra 1.3 quarts per oil change in addition to my savings. That means that every three times I change the oil, I have enough left over to not have to purchase the next round! Now it might seem like a huge pain in the butt to save $3.22, but it’s really not that difficult.

If you have a wrench and a container to catch the oil, you are good to go. It literally takes the removal of one plug bolt, and unscrewing the filter. If you can find the cap that says oil on it under your hood, that’s the last part of the mystery. Put the oil in there! Your manual will tell you how much, and what kind to use. Here’s a video just to show you how easy it really is.

So over a year, what does the savings look like? My wife drives about 500 miles a week, or about 26,000 miles a year. Manufacturers suggest changing the oil every three months, or 5,000 miles, whichever comes first. For my wife, that means 5 oil changes a year. So let’s compare the cost.

We can see that this actually really does save a considerable amount of money over the year. Besides the money savings, there is peace of mind added as well. When you get the “special” oil change deal, you can guarantee you are getting the cheapest quality oil and filter from the shop. When you do your own, you get to choose the quality. I have also heard stories about shops only draining the oil and adding new oil without a filter change. This is not a good practice!

As always, If you like the post or have a comment, please let me know below. See you next time!

Is My Pension Worth While (Concluded)

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I would like to wrap up the analysis of pension benefit payout vs self-directed investing from my last post today. We discovered that there is around an 11% lower payout from the pension from an employee that stays for five years, but I actually made an error. I was only accounting for four years of self-contributions, when I should have been looking at 5. The result is just a magnification of the original result. The true difference is way higher at 44% more in the self-directed account.

As a reminder, pension recipients get 2.5% of their average pay over the highest three year period. I have also adjusted the percent of income that we could contribute to a self-directed plan by 6.2% to account for social security tax that would become necessary by switching. I also assume the employee averages a 5% raise per year for the first ten years of their career and nothing after without promotion to a new position. This assumption is actually pretty close to true in my State. So let’s look at the numbers.

To my surprise, there is a transition point at the ten year period! This is all based on the assumption that someone follows the career track and progression listed. If there were higher earnings up front it could look a little different. I can take a look at some variations in the scenario at a later date.

If this made you want to go work for the government, check out Governmentjobs.com for listings.

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