The rising costs in tariffs, rates and taxes are a reality which households will have to face head on as there are no magic wands to wave to make them go away. We will have to get down to understanding theses expenses and how much they eat into our monthly incomes. Let’s take the recent hike in electricity costs and see how we can manage this a bit better.
The only real way to get on top of your electricity bill is to analyse how much you use and at what cost. This follows a fundamental principle in financial planning – “If you can measure it you can manage it.”
Delivery costs more than the product
Studying my electricity account reveals a shocking reality. Of the total amount payable on my account only 48% of the bill was for electricity and the other 52% was for service charges and tax. So the cost of delivery of electricity is more than the cost of the product. Nothing we can do about the other costs. Either way we have to pay….
Change your behaviour?
To take charge of your electricity costs you will need to monitor the usage very carefully understanding which appliances are the main culprits. Once you understand the cost per unit you will then be able to change behaviours in the household to limit the damage. It stands to reason that the only way forward is to convert to a “Pay as you Go” system.
This is clearly the most practical way to realise how you are doing with the consumption of your power in the home. It is real-time monitoring as opposed to the historic approach of paying at the end of the month on receiving your account.
So, changing to “Pay as you Go” will enable you to keep real with your consumption and help you to manage things because you will be topping up your household during the month. It will give you an appreciation of how easy electricity can be misused. Especially, if you are buying it more frequently than you care to.
Perhaps a good idea to start off buying smaller quantities which will help you measure things more closely.
Brace yourself
At the current rate that the cost of electricity is increasing, we will have no option but to make a provision for it in our retirement funding objectives, added to the provision we have to include for medical aid. If you can’t afford it now it will be even worse in the future.
Using the rule of 72, Eskom’s proposed tariff increase of 25% means that the cost will double in (72/25 = 2,88) just under three years. If it carries on at this rate then a major portion of you pension will go towards keeping the lights on during your retirement.