Question: What Is Budget Billing?
Many utility companies are now offering the benefit of budget billing. This basically means that you pay a set amount each month for the bill. Generally the power or gas company offers these services. The company will look at the amount you spent last year and then add a percentage to it, to cover the cost of inflation and divide the amount over twelve months. While this may seem to be a great idea, you need to carefully consider several things before you sign up. Some plans are great and some are another way for the company to charge you more money.
First, you should look at whether or not you will owe them money if you use more power then they planned. This is fine, but generally the companies will not refund you the money if you use less power then they planned. Additionally, you may need to set aside extra money to cover the cost in December.
Second, you should look at any administration fees associated with the service. Many will charge a monthly fee. The fees can vary from company to company, but anything more than two or three dollars a month is too much money for the service.
Third, you should consider the contract that you are signing. When you do this you are signing up for at least a year. There may be complications if you have to move. You should look carefully at the expectations on this. For example, you may need to pay extra when you move if you have used more power than you have already paid for. If this is the case, you may need to set extra money aside or dip into your emergency fund to cover the difference.
Fourth ,consider doing this yourself, without the charge, the contract and the hassle. You can even budget the amount they suggested. Then roll over the additional amount from the lower months to cover the more expensive months. This will help you to budget without spending money on administration fees. You can do this with any category where the amount you spend each month fluctuates. You can either divide the amount you spent over the last year by twelve, or budget the highest amount you spent last year for each month and then put the extra money into savings or towards your debt payment plan.
You may decide that this option is better for you. It is important that you fully understand what you are signing up for. There are advantages to knowing exactly what you will be paying each month. It may be worth the added expense for you. If you are worried about the cost of your utility bills, you can work to lower them.