Budget Question

[lfw]

I'm working on my budget and I wanted to ask some advice. Last night I went over the two bills I have that are not consistent every month, the phone and electric bills.

My question is, when budgeting, should I take the average of what I have paid for these for the year (adding up the 12 monthly payments and dividing by 12), or should I simply base my budget on the highest amount I paid for the year. For example, on my electric bill last February I paid $52 which was the highest electric bill I had all year.

I wasn't sure which way to go on that.

Thanks.

[poundwise]

First of all, wow, that's a low electric bill.

Secondly, I'm sure you will get a few different answers as people probably handle it differently. Here's my suggestion: If you have the last 12 months of bills then you know when your bill runs the highest and when it runs the lowest. Perhaps identify the highest bill in a three month period and then use that as a budget figure for those three months.

That is, if last year, you spent:

$48 in January
$61 in February
$55 in March

Budget $61 (or $60) for those three months

Then, if the middle of the year looked like this:

$98 in July
$104 in August
$88 in September

Budget $100 (or $104) for those three months

I don't see any point in averaging for the year as that basically means you will be way off most months, either too low or too high depending on which end of the spectrum you're dealing with at the time.

I also don't see why one would use the largest figure for the year. Though I'd prefer it to the previous method. This way, you will always have enough allocated for the bill and most months (presumably 11) of the year you'd have a positive difference.

I like to be close to accurate so I'd break the year down; similar to my first suggestion.

In my case, I get my electric bill near the end of each month (due in the next); so I just plug in the exact figure for the next month and flex some other budget items around it.

In your case, I might choose to budget $50 a month and be done with it.

[poundwise]

I'm sure there are a lot of different methods employed by persons in their budgeting scheme, however, considering that you are saying that your largest electric bill is $52, I think I would simply budget $50 a month and be happy to come in under-budget most of the time.

Maybe you could set your phone/LD budget amount towards the median/low side so it would balance out.

[Aleta]

What I do is to average out what I paid for last year, divide it by 12, and allocate that money to its own escrowed account. That way you will have money when it's lower to help pay out for when it's higher. I do that with my phone, water, and electricity. At the end of the year, when there is money left over, I'll try to put at least one month of each in there and the rest can go to your savings. I transfer this money out of the regular checking account to the money market account. I do this also with irregular bills such as car insurance, taxes for the house, insurance, Xmas savings, vacation savings, house maintenace repair, car maintenance, etc. You will find that your escrowed accounts will be earning interest for you.

[Ima saver]

I always use the highest amount that my bill has ever been. In my case $160 a month was my highest ever electric bill, so I budget $40 a week. When it is under that, I put the rest of that money in my $20 challenge saving account. My phone bill is always the same cause I use a calling card for long distance calls.

[lfw]

Thanks for the great advice everyone!! Some really great ideas.

It's always a stickler when it comes to the bills that are not consistent every month.

My electric bill isn't usually too high for two reasons, one we live in an apartment and there are 3 of us who split it three ways. So that helps.

As for the phone bill, it's not usually over $35 a month except when my husband's brother was having a crisis last summer and he was calling us every day and we exceeded our minutes to the point that the bill was over $200!! That was scary. He's over the crisis and now the bill is back down to where it should be.

Thanks again everyone.

[Broken Arrow]

I just moved not too long ago, so I still don't have a clear idea of what to expect on my utilites yet (except water/sewer). So, for now, I've lumped my gas and electric into a single line budget item (but tracked individually). In theory, as one goes up, it will be offset by the other coming down so I should end up with a relatively consistent amount.... Er, sort of. I'm also erring on the side of caution by budgeting a high average.

We'll see how that works out....

[pearlieq]

Originally Posted by Broken Arrow

I've lumped my gas and electric into a single line budget item (but tracked individually). In theory, as one goes up, it will be offset by the other coming down so I should end up with a relatively consistent amount....

You know, that never occured to me but that's a darn good idea! I'm going to have to go over our historical bills to see if this might be a better method for me.

Thanks for the tip!

[PrincessPerky]

We sorta lump, sorta use a high average.

my electric bill is usually in the 40s, but I budget 60, because it goes up to 50some some times. and I use the overflow for gas, because when electic is down, gas is up (winter)
and the gas is a low average..makes no sense really, but I never am short. and often not to much to spare.

[scfr]

My suggestion would be to take the average over the past year but then add an extra 10-20% to that amount as a cushion so that you always have some extra in the budget to cover rate increases, cold snaps, family crises, etc.

And regarding the phone bill, if you use a land line and belong to Costco you can get a prepaid calling card there that is pretty cheap to use during those times when the number and length of calls is going to be excessive.

[GreyhoundLoner]

Originally Posted by lfw

Thanks for the great advice everyone!! Some really great ideas.

It's always a stickler when it comes to the bills that are not consistent every month.

My electric bill isn't usually too high for two reasons, one we live in an apartment and there are 3 of us who split it three ways. So that helps.

As for the phone bill, it's not usually over $35 a month except when my husband's brother was having a crisis last summer and he was calling us every day and we exceeded our minutes to the point that the bill was over $200!! That was scary. He's over the crisis and now the bill is back down to where it should be.

Thanks again everyone.

Thanks for the great ideas! I was wondering this very same question. I have gone to the individual websites for power and gas, and was able to see what my bill was for the last year. I divided by 12...but I thing the three month idea is one I will try.