How to Keep Heating Oil From Torching Your Budget

I'm shuddering at the moment -- from heat, not wintertime cold.

That's because my heating-oil company just made another delivery -- and thinking about my energy bill gives me the shakes.

A $462 check I wrote last month to cover my first oil delivery -- about 145 gallons -- reflected continuing news about rising oil prices. I'm expecting a $400 bill any day for my second delivery.

And it's only the middle of January.

Last year, my family became one of the 8.1 million U.S. households that use heating oil as their main fuel. My husband, Ben, and I relied on natural gas for heat and cooking during most of our lives. That changed, however, when we moved from a populated area of New Jersey to a more rural locale in Pennsylvania, where oil heat is the norm.

We're not the only ones feeling the squeeze. The rising cost of gasoline is on the minds of many Americans -- especially after the price of crude oil eclipsed $100 per barrel this month. Paying more than $3 per gallon to fill up at Exxon-Mobil(XOM Quote) or Chevron(CVX Quote) has become the norm. However, many northeastern households -- which account for over 80% of the nation's heating oil consumption -- are also paying the equivalent to heat their homes.

Heating oil prices will increase 47.3% from last year, according to a projection by the National Energy Assistance Director's Association (NEADA), a policy organization for a federal program that provides states with grants to help low-income families with their energy bills. NEADA expects a 26.7% increase for propane, another heating source for some homes in my area. Both figures make the projected 6% natural-gas price increase and 7% for electricity appear reasonable by comparison.

There's a good chance that your income and mine, however, won't keep up with this year's increasing costs of whatever energy source powers your home. That has me wondering how much rising energy costs will eat from my family and retirement savings over time -- and about the energy bills my children will ultimately pay as increasing world demand continues to devour the supply.

I didn't think too much about the natural-gas bill in our previous home. It was just another necessary cost of living arising from a seemingly intangible heating source located somewhere under the ground. We were reasonable about energy use, setting our thermostat to about 69 degrees during the day, and lowering it to around 62 degrees at night. But there never seemed to be much of a connection between our family and the possibly finite nature of the energy supply.

The 250-gallon heating-oil tank in my yard has changed that view. A small gauge on the top -- with a line that floats between a simple "F" for full and an "E" for empty -- is a constant reminder of how much fuel we're burning. Slowing the progression from full to empty can save my family cash.

I'd like to think the 19-gallon reduction (about $60) between my December and January oil deliveries resulted from of our efforts to not waste the oil resource in our backyard. My family's small measures can benefit anyone, regardless of the source of heat.

Our energy bills would be even higher if we relied on the older, inefficient furnace that we replaced last summer. The Environmental Protection Agency requires furnaces to have a minimum 78% AFUE (annual fuel-utilization rating). That means your furnace converts at least 78% of the fuel it uses directly to heat your home (the rest exits through the flue). Older furnaces may have as low as a 65% AFUE. But newer furnaces can have as high as a 97% AFUE, so all but 3% of your fuel directly heats your home. Spending thousands of dollars on a new Trane(TT Quote) furnace pained us, but our heating bill would have been more frightening without the upgrade.