Every day you probably hear ads about how much you can save by making energy improvements to your home. Whether it’s a new air conditioning unit, double-pane low e windows, insulation, weatherization, radiant barrier, new LED or CFL light bulbs, the list goes on and on.
Yes, we all know that these improvements will save money, but are they a good investment? Here is a quick and easy way to figure out how much to invest in energy savings using the cost of money and return on investments.
Let’s say our home averages $200 per month in utility bills. Given an average home, it is pretty easy to drop a bill by 20% or $40 per month. This is pretty basic stuff like air sealing, switching to a programmable thermostat, installing a radiant barrier, better attic insulation, duct sealing, changing light bulbs and new air filters just to name a few projects.
So, if you could drop your bill by $40 per month it would put an extra $480 in your pocket over the course of a year. It’s not retirement money, but I’m sure you will find something to do with it. If you have a higher bill then the total will be even larger.
This is just like getting an extra $480 bonus at work, but it’s actually BETTER? Why? This is AFTER TAX MONEY. Which means if you were in the 20% tax bracket, you would have to EARN about $575 to end up with $480.
Now the REAL value is $575 per year. Ask yourself “How much would I be willing to invest to get a $575 bonus EVERY year”? Currently, in the investment world a 10% GUARANTEED RETURN is impossible. However, if you were to invest up to $5,750 in energy improvements and generate $575 in savings you would get a 10% return on your investment. In fact, on most homes you could probably get this much savings with less than $3000 worth of improvements which would result in over a 20% return on investment. During a tough economy, this is a SPECTACULAR RATE OF RETURN.
This is why so many people are spending (investing) the money to increase the energy efficiency in their homes.
Finally, all these numbers and assumptions are based on energy rates staying exactly the same. Over the long haul, do you REALLY think rates will stay the same? If rates go up then the payback and return on investment is even greater.
Is it worth it to invest in energy efficiency improvements? Unless you can guarantee at least a 10-20% return on your investments the answer is YES.
Tags: energy, energy efficiency, energy efficiency tax credit
