Is There a Trick to Reducing Household Expenses?
Jonna Pechter, Head of Bigbank Estonia
Rising household expenses and increasing heating costs are forcing every thoughtful family to think about the coming winter and consider whether there is anything they can do to reduce their bills and save money. It seems that when it comes to household expenses, the most sensible approach, in addition to simply economizing, is to review your heating and ventilation solutions and update them if necessary.
What renovation are we talking about – there's already little money, sounds like the typical objection. I won't argue, but just like with any investment, you need to weigh the pros and cons and base your decision not just on gut feeling, but on calculations. One side of this calculation is cold and clear. According to Statistics Estonia, the consumer price index rose, for example, in May compared to May of the previous year by 20%. Housing-related price changes had the most impact on the consumer price index, accounting for over 40% of the total increase. The figures from official statistics are harsh – electricity delivered to homes was 146.3% more expensive compared to a year ago, heat energy 61.2%, piped gas 217.3%, and solid fuel 67.3% more expensive.
Renovation loans pay off now
Energy bills have not grown by tens of percent, but many times over, and with the perspective of the coming winter, no one is predicting any decrease, but rather new price peaks. This summer has also clearly shown that electricity prices remain extremely high not only during the winter season, but year-round. For an average family/home, this can mean hundreds of euros in additional energy expenses each month – which, calculated per year, means two to three thousand euros.
According to building experts, in buildings of average general quality, replacing poor windows and doors with more heat-efficient ones can reduce heating costs by approximately one-fifth. At current prices, a similar magnitude of additional effect should also be achieved by replacing electric or gas heating with an electric heat pump. Assuming the wind doesn't blow right through the building's walls, with these measures you can reduce your heating costs by almost half. For an average apartment, the implementation of such a package should be possible for around 10,000 euros. Conservative estimates suggest such an investment should pay for itself in about 5 years.
If a good plan falls short only due to lack of funds, it is possible to take out a loan to implement it. If you cannot or do not want to take out a loan secured by real estate, then banks usually also offer unsecured renovation loans. And if, in addition to all other price increases, you are also worried about the expected growth of Euribor, then for example with Bigbank's renovation loan, the interest rate is fixed, so you don't need to fear additional costs.
Is there any magic wand?
You can dream, but in the physical environment, the law of energy conservation applies, which means that nothing comes from nothing. However, with some effort and certain sacrifices, a couple more solutions for savings come into play.
The first is, of course, simple to say, but more complex to implement – zip your mouth and exchange living in a larger place for a smaller one. For families with children, this usually is not a solution, because for a family and home to function normally, in addition to the number of square meters, you need a sufficient number of rooms. A home exchange, which in the current real estate market turbulence is certainly not the easiest undertaking, can offer a solution for savings for a single person, a childless couple, or pensioners whose living space is currently larger than necessary.
The second classic way may sound like complaining, but is now topical everywhere in Europe and on the list of official state recommendations – simply accept lower temperatures in indoor spaces during cold times. In this case, you need to invest in sweaters and woolen socks.
A third possible way for a home loan borrower to tighten their costs is to consider refinancing a home loan to thereby achieve a significant reduction in monthly payments. Currently, only Bigbank offers such a specially structured home loan in Estonia, and its special feature is the fact that repayment of the loan principal is postponed for a long period. For example, for about ten years you pay only monthly interest on the loan amount and only then start repaying the principal when children are grown, salary has increased significantly, and inflation has done its work with the loan principal. In today's economic environment, this seems to be a solution worth considering, as evidenced by the rapid growth in popularity of specially structured home loans.
