A recurring topic on this blog will be ways to cut recurring costs. It is a basic, fundamental skill that is required to free up more cash flow. One of my favorite and simplest ideas is to replace your incandescent lights with LED. I did this back in 2014 in my old house, and was able to save $500 plus a year in electricity costs. $500 per year is not a ton of money, but it is a start. What is important is the mindset of cost avoidance, and applying this mindset elsewhere such you can achieve thousands per year in savings.

The first thing you have to do is determine your electricity cost per kwh. To do this simply look at your electric bill and find the total charges for electric service. Note that the total charge includes a “customer charge” and sales tax. I recommend using the all in cost which includes these items because that is amount that will be leaving your checking account!

After finding the total cost, look for the total kwh used during the same time period. For this example it is 1165 kwh

Now simply divide the total cost by the usage. $166.46/1165 kwh = **14.3 cents per kwh.** Next, we need to estimate the total amount of cost that comes from lighting. You can do that with either a “top down” or “bottom up” approach. Both require some estimation:

Top down: Multiply an average for lighting by your total electricity cost. For arguments sake we will use 15%, but some estimate 20% or more: https://www.electricchoice.com/blog/50-surprising-facts-on-energy-consumption/. Therefore 0.15*$166.46 = $24.97. If you replaced all of your lights with LED which use 85% less electricity on average, then you would **save approximately $21.25** in this particular month.

Bottom up : Count the number of light fixtures in your house, with focus on the heavy traffic areas where lights are left on most of the day, let’s say 12 hours on average. We will assume 10 60W bulbs in this case, so 10*60W*12 hours = 7200 watt hours per day. Divide by 1000 to get 7.2 kwh per day, and multiply by 30 to get 216 kwh per month. 85% of 216 equals 183.6. multiply that by 14.3 cents per kwh to get **$26.25 in savings**.

In either estimation method, you can see how one can easily save several hundred dollars per year in electricity costs. Given the cost of LED lights has come down in recent years, as low as a few dollars a bulb, one could justify the relatively small investment.