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Getting Personal About Energy
Financial Planning
May 2005
Getting Personal About Energy
You might find it a bit odd to be reading about energy costs in a financial planning article, but when you think about it, the costs of home utilities and gasoline for your vehicles are not an insignificant part of your monthly budget - and those costs have grown in the past year or two. It takes some form of energy to power almost everything in your life. From the alarm clock waking you in the morning to turning the last light off at night, energy is one expense itâs nearly impossible to escape.
If energy is so important in your life, then it may be that changing some of your habits may help you increase your investments faster. Itâs an easy equation; decreased expenses = increased disposable income = increase in funds available for investment. So, how do you minimize the energy drain in your life? Letâs see.
Getting Around
Unless you live in a very small town or are just plain lucky, chances are you have to drive to get to many of the places you frequent. Every mile driven means you are racking up sales for oil companies. There is nothing wrong with that, except it means the money goes from your pocket to the oil company and there are a number of things you can do to minimize your costs.
Assuming you have no need to purchase a new vehicle, then your first line of defense is to make sure your vehicle is in good repair. Remember to follow the maintenance schedules recommended by the ownerâs manual. Make sure your tires are properly inflated to minimize inefficient engine use and minimize wear on the tire.
If you are in the market for a new vehicle, look hard at the potential savings provided by a hybrid vehicle. The hybrids will give you greater mileage per gallon of gas, but they will also cost more. Your driving requirements will be a big consideration. For example, a retired person who remains at home most of the time will not use the same amount of fuel as a person who drives hundreds of miles per day. If your goal is simply saving on fuel, the savings in fuel costs by purchasing a new hybrid vehicle may be far less than the additional cost of the vehicle. On the other hand, if you drive 50 miles one-way to work, your savings can be significant. For example, we compared the fuel costs for two popular versions of an SUV - one hybrid, one traditional. Below is a detail of the results:
As you can tell, the more miles driven, the greater the fuel cost savings.
Donât forget the reduction in price you get for purchasing a certified clean fuel vehicle ($2,000 in 2005 and $500 in 2006).
Closer to Home
Without doubt, all those appliances and gadgets in your house cost something in the way of energy to maintain and use. There are those items of equipment that stay "on" all the time and there are those that need energy only when you ask them to work for you. Major equipment like refrigerators, freezers and similar equipment are constantly draining energy to keep functioning. On the other hand, the toaster, stove top and other "click on" appliances need energy only when you need some function performed.
Regardless of the type of appliance/equipment we discuss, you will likely find an "energy efficient" version of the product. These are usually denoted with an Energy Star Label and they will typically provide a measurable increase in efficiency over those appliances not labeled. Whenever possible, buy the Energy Star Compliant appliance and not the regular appliances, to reduce your home electrical costs. According to the United States Department of Energy, refrigerators typically use 9% of a homeâs total consumption of electricity. Imagine the savings if you could achieve 30% greater efficiency. Assuming various savings from different types of equipment and appliances, achieving a huge savings on electricity and natural gas is possible.
As with vehicles, the better maintained your appliances are, the more likely they will be to operate efficiently. Make sure the seals of your refrigerator provide a seal that prevents cold air from escaping. Check your dryer to make sure filters are cleaned to prevent loss of drying capacity. The list of energy users in a home is endless and we wonât delve into that list. Suffice it to say that your best route to reducing energy costs is to devise a plan, concentrating on high consumption equipment, to perform an audit of the gizmos and gadgets in your home that use energy. After the audit is taken, you you have the resources needed to eliminate the more costly appliances. Take a look at www.eere.energy.gov/consumerinfo/energy_savers/energyuse.html for more suggestions.
Conclusion
Automotive and home energy costs represent a fair amout of your budget each year. Too often, we assume "if it isnât broke, donât fix it" without realizing that attitude could be costing us a fair amount of money. With higher energy costs, your budget is better served if you know where costs come from. Only then can you take steps to realize substantial savings on your energy bills. Take a look at the Department Of Energy website and others like it that help you learn about the energy audit process. You may find that you need to replace existing equipment or make improvements that will yield long-term savings. As you work through this process, give us a call and letâs discuss the tax aspects of any changes you may make.
Enjoy May.
If energy is so important in your life, then it may be that changing some of your habits may help you increase your investments faster. Itâs an easy equation; decreased expenses = increased disposable income = increase in funds available for investment. So, how do you minimize the energy drain in your life? Letâs see.
Getting Around
Unless you live in a very small town or are just plain lucky, chances are you have to drive to get to many of the places you frequent. Every mile driven means you are racking up sales for oil companies. There is nothing wrong with that, except it means the money goes from your pocket to the oil company and there are a number of things you can do to minimize your costs.
Assuming you have no need to purchase a new vehicle, then your first line of defense is to make sure your vehicle is in good repair. Remember to follow the maintenance schedules recommended by the ownerâs manual. Make sure your tires are properly inflated to minimize inefficient engine use and minimize wear on the tire.
If you are in the market for a new vehicle, look hard at the potential savings provided by a hybrid vehicle. The hybrids will give you greater mileage per gallon of gas, but they will also cost more. Your driving requirements will be a big consideration. For example, a retired person who remains at home most of the time will not use the same amount of fuel as a person who drives hundreds of miles per day. If your goal is simply saving on fuel, the savings in fuel costs by purchasing a new hybrid vehicle may be far less than the additional cost of the vehicle. On the other hand, if you drive 50 miles one-way to work, your savings can be significant. For example, we compared the fuel costs for two popular versions of an SUV - one hybrid, one traditional. Below is a detail of the results:
| Miles Driven in Year | $ Savings Hybrid over Traditional |
| 12,000 miles | $ 375 |
| 24,000 miles | $ 750 |
| 36,000 miles | $1,126 |
Donât forget the reduction in price you get for purchasing a certified clean fuel vehicle ($2,000 in 2005 and $500 in 2006).
Closer to Home
Without doubt, all those appliances and gadgets in your house cost something in the way of energy to maintain and use. There are those items of equipment that stay "on" all the time and there are those that need energy only when you ask them to work for you. Major equipment like refrigerators, freezers and similar equipment are constantly draining energy to keep functioning. On the other hand, the toaster, stove top and other "click on" appliances need energy only when you need some function performed.
Regardless of the type of appliance/equipment we discuss, you will likely find an "energy efficient" version of the product. These are usually denoted with an Energy Star Label and they will typically provide a measurable increase in efficiency over those appliances not labeled. Whenever possible, buy the Energy Star Compliant appliance and not the regular appliances, to reduce your home electrical costs. According to the United States Department of Energy, refrigerators typically use 9% of a homeâs total consumption of electricity. Imagine the savings if you could achieve 30% greater efficiency. Assuming various savings from different types of equipment and appliances, achieving a huge savings on electricity and natural gas is possible.
As with vehicles, the better maintained your appliances are, the more likely they will be to operate efficiently. Make sure the seals of your refrigerator provide a seal that prevents cold air from escaping. Check your dryer to make sure filters are cleaned to prevent loss of drying capacity. The list of energy users in a home is endless and we wonât delve into that list. Suffice it to say that your best route to reducing energy costs is to devise a plan, concentrating on high consumption equipment, to perform an audit of the gizmos and gadgets in your home that use energy. After the audit is taken, you you have the resources needed to eliminate the more costly appliances. Take a look at www.eere.energy.gov/consumerinfo/energy_savers/energyuse.html for more suggestions.
Conclusion
Automotive and home energy costs represent a fair amout of your budget each year. Too often, we assume "if it isnât broke, donât fix it" without realizing that attitude could be costing us a fair amount of money. With higher energy costs, your budget is better served if you know where costs come from. Only then can you take steps to realize substantial savings on your energy bills. Take a look at the Department Of Energy website and others like it that help you learn about the energy audit process. You may find that you need to replace existing equipment or make improvements that will yield long-term savings. As you work through this process, give us a call and letâs discuss the tax aspects of any changes you may make.
Enjoy May.
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.
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