Destroyer of Wealth

I was looking at our electricity consumption over the month so far, though we still haven't got any prices to know exactly what this shemozzle is going to cost us.

If you can't see from that image, the blue columns are the daily consumption, the red line is the average daily temperature and up the top in the middle, there is the total consumption for the month so far.

As you can see, there is a strong correlation between how much we consume and the temperature, with the highest consumption when it was -10C (14F) on the 5th of January. When it is just above zero, we use about 45% less. However, some days will also have higher consumption as we choose the days when we do our laundry and use the dryer based on the spot price of electricity. It is generally lower on Sundays, so the 8th, 15th and 22nd are higher, and as it didn't matter which day the past weekend, we did it on Saturday instead.

Across the 29 days we have recorded results for this month, we are averaging 95 kWh a day, with most of this coming down to our heating costs using an air-water heat exchange system. This heats our home and our hot water service, but the colder it drops the more electricity from the grid is required. At about -18 or so, it is all coming from the grid. We haven't got that cold this month, but it is likely coming in February.

It is going to be interesting to see how much the bill is going to be, as I am estimating that we have been paying around about 17 cents in total per kWh, which will push the bill up to about 500€ for the month, about 2.8x what we were paying at this time last year. The difference in "real terms" for us is over a week's worth of food, which is a significant amount to "make up" in a month, especially since everything else has gone up in price alongside energy costs. However, this is currently "not as bad" as we were expecting, because the temperature has been thankfully, unusually warm.

But, more importantly than the additional cost is, it isn't food off the table, it is the ability to save or invest - it is a loss of financial potential and during this period, a lot of people are going to be forced into not investing, at a time when there is an opportunity to invest at a lower rate than normal. This means that down the track, the cost of this period is far higher.

Globally, the "lost" amount from retail investors is enormous, but it isn't lost to the market entirely, as it is going through the hands of those it has been diverted to. They are still investing into these lows and when things will recover, the loss incurred by the average person will be their gains multiplied and compounded over time, then boosted by us again.

It is hard to win.

Isn't it?

Well, it really depends on whether you are willing to play the game and in order to play, a person needs to have the equipment. In finance, that means having the available value and ability to risk it in the hope for a return greater than the cost. And generally, people are not willing to risk "enough" of their investment, preferring to spend more on savings and consumption than where they might lose their money without having "anything" to show for it. Buying that new thing feels like getting something for the money, but losing that money through a bad investment doesn't come with the feeling that factors in the outcome of a good investment.

Essentially, most consumables, while there may be subjective value, are an investment into something that brings very little intrinsic value and will almost always depreciate to next to nothing. For example, if a person had 500 dollars monthly to spend and invested 250 and spent 250 on consumables consistently for 20 years, at 10% interest per annum, they would have around 190,000 dollars. If they instead invested 300 and spent 200, they would have around 228,000. The difference in capital is 12,000, the difference in outcome is 38,000. A 20% reduction in spending to increase investing by 20% makes quite a difference, but would that be missed monthly? Even if it was a shift from spend to invest of $25 a month, over that 20 year period, the capital investment change would be 6,000 more and return 19,000.

Of course, this is using a simple calculation, because inflation affects the outcomes, but inflation also changes salaries, so the 250 today would likely also grow percentagewise over that period - or should.

However, right now, people are going to be quite cautious, because they don't know what the near future holds, so they aren't going to invest because they want to have funds available for the unexpected. But, I wonder how many people are actually capable of putting all of that money aside for the rainy day and how many will bite into those savings and spend them on consumables? I would suspect that there would be quite a lot of bleed for many, because most of us really aren't that good without our finances, otherwise we wouldn't be having to think about these things at all. Right?

Our electricity bill will reduce drastically once the weather warms up, so we won't be spending much during the late spring and summer months. But until then, we should be careful with what we consume and make cuts where necessary, because while we need to cover the bills, the real opportunities are being able to spend on investments, because they are going to appreciate in value, generating more money (hopefully) than what they initially cost.

Energy might not be able to be created or destroyed - but wealth can be.

"I am become Consumer, the destroyer of wealth."

Taraz [ Gen1: Hive ]