Three financial experts offer their views on this question: How can I soften the impact of high energy prices?
Clark Kendall, president of Kendall Capital Management in Sandy Spring, Md.:
You can reduce your energy consumption and costs by considering green alternatives, such as a hybrid vehicle, and converting your home to a "green system." However, before running out to the auto mall or unplugging the oil heaters, individuals should compare the current cost vs. future savings of "green technology." As technology costs decrease and energy prices rise, the benefit of "going green" can be advantageous, but be careful: Going green can be expensive in the short term.
Investors should relocate a portion of their portfolios in industries and companies that will benefit from higher oil, energy and food prices. For example, it makes sense for companies like Transocean (RIG), an offshore oil-drilling company, to spend more money on oil and gas exploration because they should continue to benefit from higher energy prices, which ultimately drive up their value.
Karen Schaeffer, immediate past chair of the Certified Financial Planner Board of Standards, is managing member of Schaeffer Financial in Rockville, Md.:
Review your average monthly spending habits for the past 12 months. Pay special attention to direct energy costs, such as gas and routine utility bills. Then, project your anticipated bills for the coming 12 months using a 30 percent increase in those items. Unless your income can increase to accommodate the rising costs, determine what expenses you will rein in to avoid ending the year with credit card debt or underfunded retirement plans.
Rethink your energy consumption. Check out www.eere.energy.gov/consumer/ for great energy-saving tips.
Consider a programmable thermostat and monitor the temperature, closing off seldom-used spaces. Begin switching light bulbs to fluorescents and throw on a sweater.
Consider transitioning into a single-car family and a multi-generation household. Buy Energy Star certified appliances, and upgrade the insulation and windows for your home.
Local energy companies usually offer free advice on conserving energy. The most common advice involves sealing the leaks in our homes with insulation and weather stripping. Every degree you lower your thermostat can save roughly 3 percent on your energy bill.
Stick to your proper asset allocation based on time horizon, risk tolerance and goals. Don't try to outguess the market. All the worries about the impact of high energy prices and inflation are already reflected in the stock, bond and commodities markets. Make sure you have cash on hand to meet several months' expenses and ride out any extended down markets.
Seal the leaks in your finances to conserve your financial resources. Instead of having a $4 cup of coffee every workday, join a coffee pool or make your own for $1 a day. Put the $3 savings into a high-yield savings account. At only 4 percent interest, you could save $736 per year.