Justifying Going Green – 3rd of 3 Posts in this Series

This series of three posts are excerpts from my book, Holistically Green Homes, Eighteen Principles for Designing, Building, and Retrofitting Your Energy Efficient Home.

Here’s a quick way to determine how much you can spend on energy efficiency upgrades and still stay within your overall budget. Assume that the energy upgrades will reduce your utility bills by $100 per month. Yes, savings of $100 or $200 for energy-planned homes are realistic, as confirmed by multiple case studies in my book.

Now go to http://www.amortization-calc.com/  and enter the amount you intend to mortgage at today’s rate (today it was 4.5%) and for a length of 30 years. I used a $300,000 mortgage and came up with a $1,520 monthly payment. Next enter $320,000 for your mortgage amount. Your monthly payment comes out to $1,621 – that’s about $100 more per month. So a $20,000 difference in principle equates to about $100 in mortgage payments. That means you can invest $20,000 in energy upgrades, and assuming those upgrades actually reduce your average utility bills by at least $100 per month, you will break even!

If you can save $200 per month, then you can spend $40,000 more for energy upgrades and still break even on monthly payments.

Now remember, unlike utility bills, the interest you pay on your mortgage is currently tax deductible. In effect, your utility bill savings pay for the added principal and interest! Assuming you DO pay federal income taxes, and because interest is tax deductible, the amount you can spend to break even is not just $20,000, but $25,000 -- assuming you are in a 22 to 25% marginal tax bracket.

And remember that the utility bill savings are income tax free – as compared to other investment income that must be reported to the IRS. Further, as electric, gas and water rates increase, families who consume less will benefit more and more as the years pass – locking in on these savings may be the biggest incentive of all!