Costs of living have been so steadily on the rise for the past few years, it’s almost difficult to believe that some prices are finally starting to fall. Yet energy prices, in particular, are finally starting to come down. People are noticing cheaper prices at the gas pump, and it won’t be long before they also see this cost savings in their utility bills. Furthermore, when energy prices come down, so do associated prices of goods and services that are tangentially related as well.
While “bootstrapping and cutting back” are one way to save extra money, Chantel Bonneau-Stewart, a wealth management advisor with Northwestern Mutual, said that energy prices going down, which impacts everyone, is a great opportunity to take advantage of extra money in your bank account to boost your savings.
Most people have the savings goal of getting on track for retirement, Bonneau-Stewart said.
“Most individuals dream of a day where they don’t have to work quite as hard as they’re working right now.”
A reduction in your energy costs by even as little as 1% to 2% could be captured toward long-term retirement needs before you have the opportunity to spend it, she said.
Another place to put those extra savings could be a college account for your children, she said.
“If you’re contributing $50 or $100 a month now, you can just go in and change that automatic contribution to double or to an extra $50 or whatever that new delta is so that you don’t skip a beat on that momentum.”
On the other side of the savings coin is paying down high-interest debt, such as credit card debt, Bonneau-Stewart said.
“So even though it doesn’t feel as exciting as accumulating more assets, the same idea of setting up an auto pay of an extra $100 a month toward one of your highest interest bearing pieces of debt can help you pay that down faster because then you’re eating away at principal.”
Debt that is accumulating high interest can hold you back from longer term savings objectives, she said.
If putting cash money away isn’t as urgent for you, these savings can be put toward something more “tangible,” Bonneau-Stewart said, such as home improvement projects.
She called these projects “perpetual priorities” for her clients, be that redoing a bathroom, fixing a cracked driveway or putting in energy efficient windows.
And some of those improvements can go further toward your savings, she said, through increasing energy efficiency.
“For example, sometimes older windows or air conditioning units or lights are really energy inefficient and you could use that savings to fix something that has been on your to-do list for a long time in your home that might actually help your energy bill even more,” she said. “So you can really double down on that savings across the board.”
Bonneau-Stewart said that you will get the most out of these falling costs if you have clear goals, “Most things in life we tend to execute on faster and achieve if we have clarity on where we’re going. So the more clarity you have and the more a priority it is, the easier to do the hard work and make the choices that involve sacrifice.”
She has found that just having a clear trajectory will enable you to make “little tweaks,” such as capturing that extra $100 a month when your energy bill goes down or saving an extra $200 a month when you get a nice raise at work. “[Steps like these] can make a very big impact if you capture it toward your long-term objective.”
With clear goals, these energy savings can also help you identify the vehicle that is going to best serve that goal, Bonneau-Stewart said.
For example, if your goal is retirement, it’s really important to consider all of the formal retirement accounts like 401(k) plans or IRAs because there generally are tax incentives or benefits to those vehicles, she explained.
“Obviously, if you’re trying to pay off credit card debt, it makes more sense to take that $100 a month and directly pay it toward the credit cards, so you’re not accumulating more interest, than it does to save it in a separate account and at the end of the year take your lump sum and pay it down.”
She encourages her clients to look at their goals and the time horizon for savings. If you have a long time horizon, such as saving for retirement, those tax-advantaged accounts may be the best option. If you’re saving for something more liquid and sooner, you may want to put it into a high-yield savings or money market account, she said.
While all of these savings options are ultimately positive, Bonneau-Stewart did emphasize the need for speed.
“I just think that if you have a reduction in the cost of living or you have a savings opportunity, the more quickly you act, the more likely it is that you will follow through.” She compared it to setting out workout clothes the night before a trip to the gym to improve your odds of going the next day.
If you know that savings opportunities are coming, be prepared to take the steps to direct these funds to your savings goals before the temptation to spend it kicks in.
