Here’s How To Prepare for the Next Energy Shock Before It Hits Your Wallet
The current U.S.-Iran War is just the latest example of how geopolitical shocks can upset the energy market.
With the Strait of Hormuz closed for about three months as of the end of May, oil and gas prices have skyrocketed. With both sides waffling as to when the strait will fully reopen, it’s possible the current energy shock isn’t over.
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While you can’t control global geopolitics and the price of oil, you can take steps to help protect your wallet from ongoing and future energy shocks. Here are some practical options.
Calculate Your True Energy Baseline
It’s hard to project what an energy emergency would do to your household budget if you don’t figure out what you normally pay.
Start by looking up the last 12 months of electric, gas, heating oil, propane, and/or gasoline spending. It’s best to go right to the company website to see your bills, but you may also want to review your bank and credit card statements. Divide that total number by 12. That’s your average monthly baseline energy cost.
From there, you can run a stress test. If you’ll have to use a credit card or take out a loan if energy prices rise by 20% or more, it’s a warning sign that you should make preparations now.
Reduce Energy Use Within the House
The more you can reduce your baseline energy cost, the more easily you can absorb spikes.
Start with the low-hanging fruit:
As your light bulbs burn out, replace them with LEDs.
Clean your refrigerator coils to make them more efficient.
Avoid half-loads of laundry or dishes.
Use cold water as much as you can.
Keep your water heater at 120 degrees.
Many of these tips come from the U.S. Department of Energy itself. While they are small steps, every little bit counts when you’re trying to build a buffer.
Prepare for Gasoline Spikes Before They Arrive
When oil prices rise, gas immediately gets more expensive at the pump. While your home electric and heating bills might increase gradually over a month or more, you could literally pay more every single time you fill up your gas tank.
If you need a car for work and your daily errands, you can’t do much about the price of gas. But you can still find ways to save money:
Combine errands so you don’t make multiple trips.
Keep tires properly inflated.
Take heavy things out of your vehicle unless you absolutely need them.
See if you can work from home at least one or more days; if not, consider carpooling or using public transit.
If you have two vehicles, rely on the more fuel-efficient one.
Use an app to locate the cheapest gas station in your area.
For many Americans, it’s not realistic to give up a car. But small conservation efforts could add up to tens or even hundreds of dollars per month in savings.
Beef Up Your Emergency Fund
Even if you make conscious efforts to reduce your energy use, it may not be enough to offset the spike in prices. This is where a solid emergency fund can do the heavy lifting. If you set aside at least three to 12 months of expenses in your savings account, you can afford to cover temporary jumps in energy prices.
The Bottom Line
Energy shocks are by definition unpredictable. But you should expect that they’ll happen from time to time. Take control of your finances in advance by boosting your emergency fund, then take energy-friendly steps when prices rise to help keep your budget intact.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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