Rising energy prices – adapting to the new normal
The energy bill cap, which prevents suppliers from charging over a certain amount, has been reset because of a rise in wholesale energy prices. The new cap, which comes in on April 1, sets the top price that can be paid for energy 54 per cent higher than it was. As a result, most of us will pay far more for our energy going forward.
Dealing with a huge rise in monthly costs like this can put your financial plans out of kilter, so it makes sense to make a new budget from April onwards, to ensure you stay on track when moving towards your goals.
Here’s a five-step no-panic plan to help you to adapt to this ‘new normal.
Step one: Accept that energy will be a ‘bigger piece of the pie’
We are all accustomed to our energy bills being a certain amount of our monthly outgoings. From April 1, the slice of our budget that is allocated to paying for heating and lighting will be higher.
Take a look at your average direct debit for energy today and the percentage of your monthly income it takes up. You can do this simply by looking at your banking app, or you can use an app such as Money Dashboard or Emma, which allows you to tag the different things you spend money on so that you can see what your major costs are.
The letter from your energy supplier should explain what it believes your direct debit should rise to – so you will be able to work out how much more of your monthly money will need to go on energy.
Step two: Prepare and mitigate
The next thing to do is to check where you stand with your energy supplier. Many of us end the winter in debt with our suppliers because we use more energy in the colder months and pay the same amount in direct debits all the year round. Taking a meter reading now and applying it to your account (online or over the phone) will give you an up-to-date picture before the new prices come in.
Ensuring you continue to give correct readings will allow you and your supplier to adjust your direct debits so that you aren’t paying too much or too little, so this is a really important thing to keep on top of.
Most of us will not save money by switching suppliers at the moment, as most people are on tariffs that are limited only by the energy cap, but you can ring your supplier and check that you are on the best tariff possible if you are concerned, or check switching sites like Uswitch to see if there is a better deal for you. You may also want to see whether you can have a smart meter fitted, which could help you to keep track of where you are using energy so that you can find energy-guzzling appliances and be inspired to use them less and learn to switch off lights.
Some energy-saving measures, such as LED lightbulbs and insulation, can pay for themselves quickly – you can see on the Energy Saving Trust website how much you can save on each one (https://energysavingtrust.org.uk/energy-at-home) so it is worth considering these.
Step three: Take action to bring down costs
Many other household bills will also be rising this year, with most of us expecting to pay more for council tax, water, petrol and food. There are some bills you can bring down, however, so now is a good time to look at these.
If you’re coming to the end of a broadband contract, or are already at its end, you can probably switch to save money at https://www.broadbandcompared.co.uk, while there may also be deals to be had on mobile contracts.
Using a free comparison website such as petrolprices.com will help you to get the cheapest possible fuel at this difficult time.
If you have a mortgage, it may even be worth seeing if you can remortgage to a cheaper deal if you have come to the end of your fixed deal.
Step Four: Look at savings, investment and retirement goals
If you are saving and investing for retirement, or for a shorter-term goal, the current volatility in the stock market, as well as higher monthly bills, could affect your plans.
Speak to your financial adviser about how your portfolio is performing, as well as about whether you can continue to pay the same amount into your investments every month, given the higher bills. Making the cuts mentioned above should help to sustain your investments, but if you cannot, you may need to review whether you will have enough money for the plans you are making, or whether you might (for example) need to delay retirement or plan to invest more in future.
Step Five: Review regularly to keep on track
While inflation is rampant, making sure you are in control of your finances is key. That means using one of the apps above to ensure that you understand what you are spending on bills, continuing to keep up your savings and investment habits as much as possible and reminding yourself to review your spending regularly.
None of the comparison sites mentioned here is endorsed by AFH. You can find out where Petrolprices gets its data from here, while Broadband Compared is accredited by communications regulator Ofcom, and Uswitch is accredited by the government’s Financial Conduct Authority.