Spending Archives - Lazy Man and Money

Four Years of Solar Power Reviewed

April 22, 2019 by Lazy Man 1 Comment

Happy Earth Day! It’s hard to believe, but this month is exactly four years since we got solar panels installed and activated.

I was nervous about taking the plunge. We got a $16,000 Home Equity Line of Credit (HELOC) to pay for the panels. That’s a lot of money. And though I thought I understood everything about solar panels, you never truly know what you don’t know. Finally, I never know if I can trust local contractors that I’ll save money – they are interested in getting the job and it would be impossible to hold them accountable if they stretched the truth.

Fortunately, everything went according to plan and we’ve been extremely happy. (Knock on wood.)

One very important thing to note is that government funding via state grants and federal tax credits paid for another $16,000. Obviously state grants are going to depend where you live. I did very quick/rough research and it seems like the 30% federal tax credit is still around for 2019, but then it starts to become less in 2020 and 2021 before disappearing for residences/homes.

In short, if you are thinking about solar power, now may be the last chance to get the best price.

Before I get into our personal financial experience with solar power, the benefits to the environment have to be mentioned. Even if it financially break-even, why not do something that helps the environment? To date, our dashboard says that our panels have accomplished the equivalent of planting 686 trees. Using metrics from the EPA, planting one tree offsets the same amount of CO2 as 55.3 kilowatt-hours of clean energy production.

Put another way, our panels have generated the equivalent of 12,640,541 AA batteries. My math could be off, but I think that’s around 668,822 pounds of batteries. It’s a good thing our house doesn’t run on AA batteries.

Calculating the Value of our Solar Power

You can call it 686 trees or 12.6 million batteries, but scientists would say we’ve generated 37.9 megawatt-hours in 4 years. Thanks to the wonders of the metric system, we can say it’s 37,900 kilowatt-hours or kWh.

The reason why we care about the kilowatt-hours measurement is because that’s the unit your electric bill uses. In Rhode Island it costs 11 cents to create one kWh and 10 cents to deliver it. The costs are broken down into more excruciating detail, but I’ll spare you. So overall, using a kWh costs $0.21.

That’s actually the most expensive electricity in the continental United States. (For some reason their numbers are 22.67 cents, which is different than my bill, but it’s close enough.) The average bill in Rhode Island is $203.35. Ouch!

The 37,900 kWh that we’ve generated in 4 years would have cost us $7,985.53. We can round up that last nearly $15 and call it $8000… exactly half of $16,000 we financed. Roughly speaking we’ll have recouped our $16,000 in 4 more years. However to account for interest and inflation, let’s call it 5 years.

Thus after a total of 9 years, we’ll save roughly $2000 a year. (That’s based on easy math of the $8000 we saved already over 4 years.) It will be more as electricity prices rise over time due to inflation.

Our panels are guaranteed to be ~95% efficient for 25 years. It doesn’t mean that they won’t last longer, but that’s just the guarantee. By the time that guarantee is up we’ll have 16 years of free electricity. With inflation our electricity would likely cost around $3200 by the end. I’ll conservatively estimate that the savings come out to around $2500 a year over those 16 years.

That’s $40,000 in savings! If the system keeps working well, it could be more than $50,000.

For a handful of days of research and another few for doing the work, that’s quite the return on investment. It’s a year’s worth of income for many people. While your state will likely be less of a savings, it doesn’t mean you shouldn’t do it.

If you are thinking about getting solar power yourself, here’s a quick guide I wrote. It’s hard to get too specific because each state has its own tax credits as well as it’s own costs of power. If energy is cheap in your state, it could be a poor financial decision to get solar power. That’s why it can still save us money even though Rhode Island is not known for being sunny.

Have you explored solar power? Let me know what you think in the comments.

How Much Should I Spend on a Car?

April 14, 2019 by Lazy Man 16 Comments

Everyone has tried to figure out how much they should spend on a car at one point or another. We bought our last car around 5 years ago. We’re hoping to keep it another 8 to 10 more years, so hopefully, I won’t have to ask about it again for awhile.

We bought a Subaru Forester because it was cheap and perfect for a growing family, New England snow, a muddy dog, and the beach sand. We bought an Acura MDX, because the family grew bigger, my wife’s commute is longer, and the luxury makes a difficult day bit better.

However, yesterday, I came across a Tweet that made me think:

Just saw another bad car-buying rule of thumb:

"Never spend more than 5% of your net worth on a car."

???

Some people have a negative net worth and need to get places to change that.

— Stephonee | PoorerThanYou (@stephonee) April 13, 2019

Now obviously it makes sense that people with negative net worth still need to have a car. However, I had never thought about tying the amount of car to net worth. It didn’t seem to make sense at first.

Then I thought about it in terms of my own money journey. It seemed to fit, but maybe it was a little low. Here are some examples:

Net Worth	Car Price (5%)
$300,000	$15,000
$500,000	$25,000
$800,000	$40,000
$1,200,000	$60,000
$1,500,000	$75,000

What I like about this is that it seems to curb lifestyle inflation. I think that was intention of the advice, but I don’t know where it originated. Besides the error, for low/negative net worths, it was too strongly worded for me. I rarely like to give advice by telling people what to do. Instead, I like to just explain what I’m doing and why I’m doing it. Your situation may be different, but maybe by following along with my thinking, you’ll be able to adapt it to your own.

So let’s pretend that I feel like buying a $75,000 luxury car. I look at the chart and see that it matches up with a $1.5M net worth. I’m not a fan of buying expensive cars, but if you have a 1.5M net worth, a $75,000 car is probably going to work out.

I decided I’d try to make the advice a little better by eliminating the negative/low net worth problem and making it more flexible (removing the “never” language). So I went with:

What if we try to fix it? Something like "Buy the cheapest reliable car that fits your needs. If you want a better car try to spend less than 5% of your net worth."

Feel like there should be some income guidelines too.

— LazyManAndMoney (@LazyManAndMoney) April 14, 2019

It was kind of a quick thought and while it is better, it’s not all that great. I think it keeps the flavor of the original advice which is all I was trying to do.

However, what if I tried to do more? What if I tried to come up with a very good answer for…

How Much Should I Spend on a Car? (Formula 1)

I think any formula is going to be doomed to failure. Nothing is going to work for everyone. People value things differently. For some, like my wife, a car could be one of the few luxury they car to spend money on. For others, like myself, a car is a convenient way to get from point A to point B.

It’s very hard to find “universally accepted” advice in personal finance. At the same time, if we can help a bunch of people with a rule of thumb, why not give it a shot?

With that in mind, I came up with three concepts that I wanted to be part of a rule of thumb:

Net Worth

As I mentioned above, I like the idea of incorporating net worth. It can be used to give license to people who have done a great job saving. It can also be used as a check to stop you from buying too much car.

Negative/Low Net Worth

We have to incorporate something that allows everyone to buy transportation. It might not be great transportation, but we can’t say, “Sorry, you can’t have a car to make money.”

Income

If you are making a lot of money, but just starting out a career with low net worth, you should be able to get a more expensive car. If you are low income, a lower priced car is going to be a better fit.

I fired up my spreadsheet program and created my first formula. It was:

$5000 + (10% of income) + (4% of net worth (0 if negative)) = Max Spending

Since I’m still trying to figure out how to write a calculator for WordPress here’s a table of what that formula might look like:

Income	Net Worth	Formula
$25,000	$0	$7,500
$50,000	$0	$10,000
$75,000	$0	$12,500
$100,000	$0	$15,000
$125,000	$0	$17,500
$25,000	$25,000	$8,500
$50,000	$25,000	$11,000
$75,000	$25,000	$13,500
$100,000	$25,000	$16,000
$125,000	$25,000	$18,500
$25,000	$50,000	$9,500
$50,000	$50,000	$12,000
$75,000	$50,000	$14,500
$100,000	$50,000	$17,000
$125,000	$50,000	$19,500
$25,000	$100,000	$11,500
$50,000	$100,000	$14,000
$75,000	$100,000	$16,500
$100,000	$100,000	$19,000
$125,000	$100,000	$21,500
$25,000	$250,000	$17,500
$50,000	$250,000	$20,000
$75,000	$250,000	$22,500
$100,000	$250,000	$25,000
$125,000	$250,000	$27,500
$25,000	$500,000	$27,500
$50,000	$500,000	$30,000
$75,000	$500,000	$32,500
$100,000	$500,000	$35,000
$125,000	$500,000	$37,500
$25,000	$750,000	$37,500
$50,000	$750,000	$40,000
$75,000	$750,000	$42,500
$100,000	$750,000	$45,000
$125,000	$750,000	$47,500
$25,000	$1,000,000	$47,500
$50,000	$1,000,000	$50,000
$75,000	$1,000,000	$52,500
$100,000	$1,000,000	$55,000
$125,000	$1,000,000	$57,500

That’s a long table, but hopefully you can find some numbers close to your own to get a quick estimate. If you need more rows at the end, that’s a good “problem” to have.

As you can see, everyone can buy a car of some kind. If you make more money, you can buy more car. If you’ve had a history of saving and growing your net worth, you can buy even more car. We can play around with the numbers some, but I’m thinking that income should possible be a bigger factor. Since these numbers are estimates, I’ll let you experiment on your own. Please let me know in the comments if this produces a good estimate for your own financial situation.

How Much Should I Spend on a Car? (Formula 2)

Something doesn’t sit well with me on that first formula. It doesn’t factor in other expenses.

If you make $125,000 a year, but spend almost all of it on housing, child care, student loans, etc. you aren’t going to have much left over for a car. On the other hand, if don’t have any of those expenses (limited property tax on a house already paid off), you are going to be able to afford more car.

So rather than just use income by itself, I decided to come up with numbers of income – necessary expenses. My working formula is:

$5000 + (50% of (income – necessary expenses)) + (4% of net worth (0 if negative)) = Max Spending

Here’s another rough table using several income minus necessary expenses numbers:

Income - Expenses	Net Worth	Formula
$0	$0	$0
$4,000	$0	$800
$8,000	$0	$1,600
$12,000	$0	$2,400
$16,000	$0	$3,200
$0	$25,000	$1,250
$4,000	$25,000	$2,050
$8,000	$25,000	$2,850
$12,000	$25,000	$3,650
$16,000	$25,000	$4,450
$0	$50,000	$2,500
$4,000	$50,000	$3,300
$8,000	$50,000	$4,100
$12,000	$50,000	$4,900
$16,000	$50,000	$5,700
$0	$100,000	$5,000
$4,000	$100,000	$5,800
$8,000	$100,000	$6,600
$12,000	$100,000	$7,400
$16,000	$100,000	$8,200
$0	$250,000	$12,500
$4,000	$250,000	$13,300
$8,000	$250,000	$14,100
$12,000	$250,000	$14,900
$16,000	$250,000	$15,700
$0	$500,000	$25,000
$4,000	$500,000	$25,800
$8,000	$500,000	$26,600
$12,000	$500,000	$27,400
$16,000	$500,000	$28,200
$0	$750,000	$37,500
$4,000	$750,000	$38,300
$8,000	$750,000	$39,100
$12,000	$750,000	$39,900
$16,000	$750,000	$40,700
$0	$1,000,000	$50,000
$4,000	$1,000,000	$50,800
$8,000	$1,000,000	$51,600
$12,000	$1,000,000	$52,400
$16,000	$1,000,000	$53,200

Is this calculation any better? It’s certainly a little more complex. I’m not so sure because it’s harder for me to test. I don’t have a good set of numbers to plug in. This is where I could really use your help. If you could let me know in the comments I’d appreciate it.

Final Thoughts on Car Spending

Just before publishing this, I decided to do a little reading to see what the experts say. Many suggested using a debt percentage and limiting your debt overall. I didn’t like getting into that because sometimes there’s good debt and bad debt. It’s reasonable to consider it though.

At the end of the day, the estimate is just that… an estimate. There are things you can do to get more value for your dollar when spending on cars. Here are some tips to save money on cars and how to save money on gas.

Let’s Discuss $800 Candles

November 30, 2018 by Lazy Man 5 Comments

I’ve been extremely busy lately, hence the tumbleweeds on this blog.

One of the great things about blogging about money is that there are always new stories to write about. Money isn’t going away and people are always going to do interesting stuff to get it.

For example, 5 years ago I wrote about Kanye West’s $120 Plain White T-Shirt. I guess he needed that money to buy his private jet.

I’d rather buy very cheap T-shirts. They do the job and I can move on with life.

So what about an $800 candle? I didn’t know this was a thing, but the luxury candle market is booming.

No matter how hard I try, I can never wrap my head around “the lifestyle space—specifically by the beauty, wellness, and fashion industries.”

When I read news about $800 candles, it motivates me to teach my kids how to make candles. They won’t be “luxury” by any measure, but it will still perform its primary function… light and heat. And of course there’s the pedagogical benefit. (That’s my attempt to sound smart by using big words. Did it work?)

I’m going to make this short and sweet. I don’t understand this crazy pricing. Yankee Candle has a deal for around $13 a jar this holiday season. That’s the premium brand. There are knock-offs at a fraction of the price. If it was like DoTerra’s Essential Oils, I’d get it. However, it’s not wrapped in a pyramid.

What do you think? Let me know in the comments.

We Own Two Cars!

October 10, 2018 by Lazy Man 8 Comments

I hope you had a good Columbus Day. Yes, I’m a day behind (as usual). I’m still trying to figure out what kind of holiday it is. The kids and wife didn’t have school or work, but the stock market was open. At this point, if I don’t haven’t figured it out, I probably never will.

That four word title has been nearly 6 years in the making. Let me recap:

The Subaru Forester

In late December 2012, we bought a Subaru Forester. The move back to New England with a newborn made my old Ford Mustang not practical.

I wanted to buy a gently used car to take advantage of someone else paying the depreciation. However, there were very few gently used Foresters in New England. I think people tend to drive them for years. The dealership had a couple of used Foresters, but the discount was only about 8% off a new one, not a big savings. In addition, there were some dealer incentives with the new cars that weren’t available with the used ones. I felt like they wanted to keep those used ones around to bring in new customers into the showroom.

One of the dealer incentives was 0% financing over 60 months. Why yes, we will take your interest-free loan, Mr. Subaru!

Many personal finance gurus will say we made the wrong financial decision buying a new car. The numbers worked out better with the new car. It was a reasonable new car purchase at $25,000. Finally, we put a premium on safety with the newborn. We had an incident with the old car and it reaffirmed to us that life is very different when you are new parents with a newborn.

The Acura MDX

Eight months after the Forester, we found ourselves buying an a luxury SUV, the Acura MDX. We were expanding the family with another son. It made sense to move sell the Jeep from 2004 with 125,000 miles and get one that is bigger than the Forester for longer family trips. Two kids, big dog, and strollers take up a lot of space. When we travel with luggage to the airport, we get very close to using every square inch of space.

From a personal finance perspective, a new luxury SUV breaks ALL the rules. It’s a cardinal sin. There’s no way to justify spending a lot of money on a depreciating asset, right?

Wrong.

As I wrote in that article, my wife’s previous two cars had been the “junk college car” and the “need a car right now” car (2004 Jeep). At the time of the car purchase, she’d been a pharmacist for a dozen years. That’s another way of stating what I wrote at the time, “she’s earned a luxury car and then some.” She commutes 90 minutes a day a couple of times a week to her office – a tremendous reason for a luxury car. Finally, did you notice from the above that she was pregnant twice in a very short time?

We went through a dozen luxury cars (as mentioned) and eliminated a lot of the 70K+ luxury SUVs. The Acura MDX checked off all the luxury boxes. It also was only $42,000. I realize that “only” in this case may mean different things to different people. Personal finance is relative. However, when you are looking at spending $70K, $42K is a bargain.

We financed the Acura through USAA which had a partnership with TrueCar. It was 60-months at 1.35%. If someone wants to loan me thousands of dollars at a nearly 1% interest rate, I’m not going to say no. Unfortunately, it’s not as good as Subaru’s deal.

Fast forward to today. The 5 years (60 months) have passed and we have the titles. We moved from “buying” two cars to “owning” two cars.

The plan is to drive both cars for many more years. I’m hopeful that we’ll get 8 more. At that point this 50-year Lazy Man will have yet another mid-life crisis and buy the Mitsubishi 3000GT that caught his eye in college. (I try to plan my next mid-life crisis because that means I’ll live forever, right?)

Like everything in life, plans change. We’ll re-evaluate all the time like we always do.

How Much are You Spending on Your Home?

June 22, 2018 by Lazy Man 2 Comments

[Editor’s Note: If you were a member of my VIP Email List on Wednesday, you know that I’m giving away $100. If you missed it, perhaps you should join the list as I’ll be doing more giveaways.]

A couple of weeks ago, I wrote, Your Life or Your Home. In it, I explained that people generally work 45 years and housing expenses. It’s estimated that people spend about 1/3 of their money on their homes, which translates to 15 years of work. (It’s not exactly that simple as income typically changes throughout one’s lifetime.)

I got an email from Zillow that reminded me about this. Their press release stated research that Mortgage Payments Require Largest Share of Income Since 2009.

If you think about it, it seems obvious. How could it be any other way with the housing recovery and rising interest rates on mortgages? I suppose income could be growing faster to outpace the recovery, but income (at a nationwide average level) doesn’t usually fluctuate that much.

This is the rare case where the headline didn’t seem to tell the most interesting story. It was almost anti-clickbait.

Zillow looked at the 35 largest housing markets and gave a regional breakdown of “Share of Income Spent On Mortgage” for each. They gave averages for the past and projections for the future, but I was mostly interested in the 2018 number. Maybe I’m just in a “live for now” mood today.

I think it’s worth looking at the national numbers to get some perspective on the average. From 1985-2000 mortgages were around 21% of income. In 2018 it’s only 17%, and that’s despite growing a lot over the last 9 years to reach a high. There are other housing expenses than just mortgages, but it still seems like this is below the 1/3 (33%) estimation that I’ve seen as an average.

I immediately decided to calculate our own number. I bet most people don’t know it off the top of their head. Our income fluctuates quite a bit due blogging, dog sitting, and whatever else we’ve got going on. I picked out a reasonable average and our mortgage came out to 21.6% of income. I’m changing my name from Lazy Man to Mr. National Average (at least in this case.) That may not be a fair number as we have a 15-year mortgage and most people probably have 30-year mortgages. It would likely have been closer to 15% if we didn’t love the idea of not paying the bank for 15 years.

The regional details in the report showed how much this number can fluctuate. If you scroll towards the bottom of the chart, you’ll see two of the extremes, Indianapolis at ~12% and San Jose at over 51% of income. Of course the job situation in Silicon Valley is very different than Indianapolis. It’s no surprise that housing prices were at opposite sides of the spectrum in these two cities. However, this number is a percentage of income, which means it should be normalized for all the high tech salaries in San Jose.

If you had guess without looking at the chart, you’d think that New York City would be like San Jose. We know the housing in New York City is outrageous, right? We’ll it’s 27.7% of income, which is just 6% more than average of the US. That’s not insignificant, but I found it notable that NYC is a lot closer to Indianapolis (15% difference) than San Jose (24% difference.)

When I wrote that aforementioned VIP Email List earlier this week, I asked people for suggestions on how to improve the website. Many of them asked for more practical advice. It’s hard to know what’s practical for a diverse group of people. However, what if we used this chart to figure out if relocation could pay off for us?

I know there are a lot of factors that go into choosing where you live. However, with so much of your income tied up by this decision, it’s probably worth taking a second look and seeing what you are spending on your home and what you could be spending. It’ll make a much bigger difference than that subscription to Netflix.

Four Years of Solar Power Reviewed

Calculating the Value of our Solar Power

How Much Should I Spend on a Car?