I’ve been delaying our January Family Budget Update because first I wanted to share our big new financial goal. In December’s family budget update I mentioned that we will have a new financial goal with the new year, and it’s big enough that it deserves it’s own post to explain.
After paying off six figures of student loan debt (we finished in 2017), we took a break and cruised along for about a year without a rigorous financial goal. Though we were still frugal, we missed the energy and excitement that came from working toward a goal. As we shared in this live video, we decided to set the goal of paying off our mortgage in 5 years. We were motivated by the challenge even though the goal looked impossible on paper.
Fast forward 3 years into our 5 year goal. We’ve used up 60% of our goal time and paid off 41% of our goal. That might not sound very impressive (we would certainly need to pick up the pace to finish paying it off in the next two years) but even so, we’ve paid off $150,000 of principal since we set the goal at the end of 2018! If we had just kept up on standard 15-year mortgage payments for those three years, we would have reduced the principal by only $52,000.
It’s time for a new financial goal
Now we’re hitting pause on our accelerated mortgage payoff, not because we’re discouraged or disillusioned, but because we’ve chosen to switch our financial focus. For the next two years, we have another goal.
In the video above, we talk about some other possibilities we considered before deciding that we would focus on paying off our house. One of them was getting solar panels for our property. At the time it didn’t sound super exciting (especially to me), but recently we reconsidered.
In fact, it was just days after we put $7,500 extra toward our mortgage principal that Mike asked if we could talk about solar again. As you’ll see, having that chunk of money still available would have come in pretty handy. Oh well!
Why we’re getting solar
We’ve intended to eventually put up solar panels since we bought our home five years ago. We originally decided to finish paying off the house first and then move on to solar and other projects, but for a lot of reasons we think this might be the best chance to go solar for the next long while. For the last few years Mike has continued to follow changes in solar laws and programs, and in California, at least, we might be at the point of now or never.
Let’s look at some quick numbers:
Scenario 1:
$3,600 – our total electricity bill for 2021
$3,780; $3,969; $4,168; $4,375; $4,594 – our electricity bills for each of the next five years if we use the same amount but rates increase at 5% each year
$81,566 – our total electricity bill over the next 15 years if we use the same amount every year but rates continue to increase at 5% per year
Scenario 1 was our “best case scenario” back in December when we decided to buy a solar system. It uses an estimate of 5% rate increases each year. Looking back shows that 5% per year is pretty conservative. To show how far we are from the best case scenario already, in January 2022 PG&E bills went up about 9% due to increasing natural gas costs. Even though we don’t use gas here at the house, much of PG&E’s electricity comes from gas-fired power plants so electricity costs go up too. In March 2022, they’ll go up an average of 9% more. And PG&E has requested general rate increases for 2022 and 2023 as well, at which point they’ll really just be starting the very expensive work of undergrounding power lines and taking care of decades of deferred maintenance. It’s not a great time to be a PG&E customer.
So we come to Scenario 2:
$3,600 – our total electricity bill over 2021
$4,320; $5,184; $5,443; $5,715; $6,001 – our electricity bill for each of the next five years if we use the same amount but costs increase at 20 percent each year for 2022 and 2023 (2022 has already happened and 2023 is more likely than not), and then just go up 5% each year after that.
$105,919 – Assuming we see PG&E electrical costs rise by 20% in 2022, another 20% in 2023, and then 5% annually after that, we would have total electrical bills of $105,919 over the next 15 years and our 15th year electrical bill would be $10,264. Unfortunately, many industry watchers think this is also a conservative scenario. We won’t know for a few years, but hopefully they’re wrong.
Of course these are very simplistic models. Broader inflation trends, increasing income, and other variables could make the increases comparatively less dramatic. But even if they’re less dramatic, they are still going to be huge.
So increasing costs might make this a great time to start generating our own power, but there’s another big incentive too. California is planning to replace the current Net Energy Metering 2.0 program which defines the fees residential solar owners pay just to be connected to the grid and how to calculate and pay the solar owner for any power produced beyond what they use. This has turned into a hotly contested battle and we won’t cover the details here but whatever the final decisions on the future of rooftop solar, it seems very likely that later in 2022 or 2023 we’ll see changes that make solar panels a much less attractive investment. So, for us, someday has turned into today.
How much does it cost?
We only looked seriously at purchasing a solar system outright. There are lease options available, but they’re usually bad deals compared to buying. Of course, if there’s no way to come up with the purchase price, a solar lease program could still be cheaper than buying power straight from the utility, but if purchasing is a possibility it’s almost always a better overall financial option.
But purchasing costs a lot. We spoke with several companies and got several quotes. Because our solar system will power both our home and our rental, and because we live in a canyon where some early and late sunlight is blocked by the hills on either side, we’re looking at a large 15 kilowatt system with a total cost of $70,000.
$70 Thou? Holy cow! How are we going to pay for this?
I’m glad you asked. It’s a fair question.
First off, the cost doesn’t all come at once; there are several payment dates along the way. After an initial $1,000 down payment to get started, there’s a larger payment due on the day permits are approved, another on the day construction begins, one on the day construction is complete, and a final payment at interconnection with the utility’s grid. That gives us a little time, but we’re hoping that the whole process takes less than four months, and it’s not very likely we’ll have $70,000 in cash even after four months.
So we’re spreading it out even further, across two years. That means… a $50,000 short-term loan. Blech! I know! That’s not a lot of fun, and it’s disappointing to take on additional debt when our whole financial life has been spent paying student loan or mortgage debt and avoiding any other. In every circumstance except for school loans and mortgages, we have followed a strict policy of only buying with cash.
But personal finance is personal. Our conclusions were that installing solar now provides an overwhelming numerical advantage, but policy changes if we waited a few years might erase that advantage nearly entirely. So we made a decision to finance the purchase.
Now to the nuts and bolts of how we expect that to work.
Total cost: $70,000
Finance amount: $50,000 @ 5.25% interest
Unfinanced cash: 20,000
We plan to pay the $50,000 loan off in 2 years with monthly payments of $2,199 per month.
At the same time, we’ll pull together the other $20,000 sometime between now and the end of the solar system construction. Our budget will be tight while we work on that. Happily we just filed our taxes and expect to receive $7,000 in refunds, so there’s a good start.
It will still be a pretty good stretch, but a few things should help make this doable.
1. Solar tax credit – $850/month. For 2022 we’ll be able to take advantage of the Residential Energy Efficient Property Credit which counts 26% ($18,200) of the total cost of solar against our federal income tax liability. The result is that for 2022, and into future years until we use up the $18,200 tax credit, we won’t owe any federal income taxes. Mike changed the withholding on his paycheck so no federal income tax is withheld. That will bring his take home pay each month up by about $850.
2. No electric bill – $350/month. As soon as we have solar connected, our electricity bill will be at or very near $0. That will save us about $350/month which can go toward paying for our solar system instead.
3. Additional side income – ???/month. When we were working to pay off Mike’s student loans, he worked evenings and Saturdays with his own private law practice clients. After paying off that debt and buying our house he phased out the private practice work to be able to spend more time with our growing-up family. However, he has continued to have a steady stream of requests from former clients or people referred by them. For years he has redirected that work to other local attorneys, but he’ll start accepting some of what comes along instead of referring his clients to others. A few years ago he spent 2-3 hours commuting each day so his time was really limited. With his current ten-second commute, taking on the extra work won’t be nearly as burdensome as it was in the past. It should really help us handle these extra costs and reach our goal of paying off the $50,000 loan in two years.
I would love to also see Six Figures Under contribute more to our bottom line, as it did during our original law school debt payoff. For now though, my priority is the kids. I hadn’t planned to be homeschooling for the past two years, but if I’m going to do it I want to do it well. I’m getting better at balancing my time, but I won’t chase business goals while I have my kids (who are growing up too fast) at my feet.
In a nutshell
So there you have it! In a nutshell we’re pausing our mortgage payoff so we can pay $70,000 for a solar system at home. We’ll have a loan for $50,000 which we’ll pay off over the next two years. We’ll also scrape together $20,000 more during the next several months. Because our payments will be due pretty soon, we may end up having to take a loan for a month or two from our own emergency fund, but we’re excited to take this on and make it happen.
What do you think?
Are you surprised? Do you think we’re nuts? (It’s okay if you do.) Do you have solar power on your property?
I’ve had solar since 2017. As each appliance ages/needs repair I’ve switched to electric. Oven, dryer, and hot water heater. Eventually I’ll replace the forced air natural gas furnace with an electric one. Hybrid heat pump hot water heaters are the only thing I’d rush out to change.
We purchased Tesla’s medium sized system and 2 powerwalls in March 2020 (decision was not related to the pandemic, just coincidental). We paid around $34,000 before tax credit. Best investment ever. With OhmConnects Ohm hours and the battery, we only paid PG&E $350 the whole year. We have a plug-in vehicle too. We had a tru-up at the end of the year, which I was worried about, but was only $500 (ohm connect paid us $150 throughout the summer). Before solar, my electricity bill was $600 per month in the summer. Good luck. You won’t regret it!
I really want to get solar for my home. Tesla reviews have not been that great, and the cost is still way too high for the average consumer. I wish government provided more incentives
I just wanted to say, it means a lot to me that you are prioritizing spending time with your kids over your business you’ve built up.
I can imagine that would be hard, after all the work you’ve put into this blog,but 8 believe you’re doing the best thing.
You are right, they do grow up too fast.
This was good for me to think about.
I don’t know how many days we’re given. People I know had considerably less than I thought.
Lately I’ve been shaken, realizing how much of my life ive focus on goals (husband finish gradschool, get our first house, fix up said fixer upper house, floor the bedrooms, fix the laundry system…) after which I’ll let myself live,enjoy spending time with my kids.
Goals are good, but I kinda sacrifice daily life too much.
And its scary how fast my merry mob of toddlers have become brooding preteens.
I still need goals, but I think I need to learn to balance them with life with the kids. Allowing myself to savor time with them now.
I really like how you do family trips and choose to take a hit in your blog job, to spend time with them.
I just wanted to say, thanks for being open about your choice to prioritize family over the blog.
Its a good reality check for me, in my goal driven mindset.
The reason PUC’s have changed the rules retroactively is because large commercial power users and non-solar residential customers were getting killed by solar customers who were not paying their fair share for the infrastructure required to serve them on cloudy and rainy days as well as back office costs. Ratemaking is based on every customer paying what it costs to serve them plus a profit margin for the utility. Most early net metering tariffs were subsidizing participants by overcharging everyone else. That’s not sustainable and it’s the reason you can’t count on your deal being grandfathered in. I’m not saying what is right or wrong or fair or unfair, I’m just stating facts from a regulator’s perspective.
Thanks Steveark. I always appreciate your informed, level-headed thoughts.
I understand the CPUC position and it’s not easy. I work for the same state government and it was a shock a few years in when I realized that “the government” is just some people in a room trying to figure out what to do about an issue, and sometimes even getting it right. I agree that they need to change the program. There were adoption threshholds built into Net Metering 1.0, the original very generous program, and Net Metering 2.0 which replaced 1.0 once they reached enough installs under 1.0. Now that 2.0 is reaching expected adoption levels, it’s time to design 3.0, which in some undetermined way will change the financial incentives.
I wish them the best in coming up with 3.0 (and I’m glad it’s not my job.) In the meantime, if we have the choice to go solar under 2.0 or 3.0, the choice is easy. It would just be nice to know that 2.0 is really what it is, and not a moving target that gets revised out from under us after the investment is made.
It sounds like y’all have done your homework, as usual and have a great plan that will help you greatly. I also think it would be an attractive benefit should you ever decide to resell. I’m not good with math, but just wondering how long it will take to recoup your outlay, including the tax credit and lack of a power bill.
Thanks Jennifer. It’s a little difficult to know how long it will take us to earn back our investment because it depends on the future rates of electricity. The faster electricity costs go up, the faster our total savings from not paying those costs goes up, and we reach our investment recovery point sooner. If everyone gets lucky and rates stay pretty stable, our recovery term is longer.
We can make some predictions though. With electrical rates as the only factor, in Scenario 1, where costs go up annually at 5%, we would recover our investment in about 13 years. Given the price volatility of natural gas and PG&E’s plans for increased maintenance, all of which show up as a 20% cost increase in the first quarter of 2022, it’s very likely costs will increase at more than 5% annually, so our actual recovery period is probably less than 13 years. Running a scenario that includes inflation, insurance costs, and the effects of future solar policy get kind of complicated, but as a starting point, we have that a conservative estimate. With solar panels still producing 25 years from now, we hope to have the system pay for itself and then start paying us in reduced electrical cost for many years thereafter.
Hi there, I had solar at my previous home which was thankfully bought by the previous owner. I honestly can’t recall the kilowatt amount but it was 26 panels for a 2,900 sq ft home. Luckily always in the sun and did produce almost daily as we lived in So Cal. Our monthly bill was $1 we had to pay to So Cal Edison for the connection fee. However they would bill you annually still for the entire year of what you produced vs use. The first few years it was minimal around $300-400 for the whole year. Great! However the last 2 yrs with raising costs and the decreasing amount they pay you per killowatt if that’s what it’s called sorry…the bill came to $1900 annually! Ugh. What a unwanted surprise. Not sure how PG&E calculates and bills it all but you want to make sure you know all these details before purchasing. I still think overall solar is worth it. Just nice not to now all details upfront. Hope this helps with your calculations and research!
Hi Lynnette. Thanks for sharing your experience! That would be a big disappointment to be expecting free power and end up with a $1900 bill! Do you remember if the solar on your So Cal home purchased by the prior owners or was it in a lease agreement with a solar management company? At least up here, I don’t think the amount they pay an owner per killowatt hour should be variable. In most lease agreements though, your cost per unit and payment amount received per unit is pegged to some other indicator, and you can end up with variable costs. Maybe that’s what was going on, or maybe I don’t understand the program right.
We’ve tried to look at the details in depth, but I’m sure we’ll have some surprises. The biggest will be what the CPUC decides is the successor program to net energy metering 2.0, and if they decide to make any parts of it retroactive. We can make sure we’re part of that discussion, but they’ll make some call in the end and we’ll hope it’s not terrible for us.
Hi there, no it was a not a lease program. But I also had solar at a previous house as well that we did lease and we had the same experience with So Cal Edison with the end of the year bill. We were told by both solar companies for both houses they can only do a projection of use and that we might end up with an annual bill from our energy company. However if our solar produced less than the solar company projected they would pay us a small amount back. Which was not the case for either houses. The projection amount was pretty accurate for the amount actually produced thus we didn’t get a check from the solar company. But that’s why it was such a surprise to get an annual bill. I just thought I would share my experience so you are aware this could happen and have to factor that into your calculation. And I believe I heard CA is considering a tax on solar or lessening the amount they credit you per kilowatt. Sorry I cannot remember what exactly was said about that. Hope this helps! And sorry I do not know all the technical verbiage ha 😉
Great idea!
I think you are being wise as usual. I am interested in how often the battery backups have to be replaced and the insurance costs involved. How amazing it will be for you and your family to have it all set up and running. No more black outs.
Thank you Linda. We’re excited too. After several years of thinking, watching, and talking, it’s nice to be acting and we think it’s very likely to turn out very well for us.
Backup costs and insurance costs are both important factors. We sidestepped the battery issue by not including battery storage at all. We have a generator to keep the essentials going during blackouts, and a small portable battery (that can be charged by the generator) to recharge phones and laptops, so blackouts are just somewhat inconvenient adventures. The insurance cost does go up, but not in an entirely proportional way (e.g. if the solar adds 15% to the replacement cost of the home, the insurance premiums don’t go up a full 15%.)
I am also looking at solar, but I have to pay a minimum of $30 or so to remain hooked to the grid if I get solar. You don’t have a minimum payment there?
Also, a utility near me recently stopped net-metering, and made it retroactive, meaning that solar customers who already had a contract to get net metering, no longer did. There is a lawsuit going on about that now. A power company in another part of my state is lobbying hard to reduce the amount solar users will get for their excess power that they sell to the utility in summer, but will be charged full price to buy power in the winter.
What does your insurer say about solar panels? My home insurer says I will have to pay extra for the panels. It won’t be a whole lot extra, but panels will add to my insurance costs if I get them. Also, the battery backups have to be replaced after 10-15 years – will that cost be figured into your total savings?
I’m interested to hear how this works for you, as I’m seriously considering it myself.
Great questions JD. I’ll comment in-line here.
I am also looking at solar, but I have to pay a minimum of $30 or so to remain hooked to the grid if I get solar. You don’t have a minimum payment there?
There is a minimum connection fee and we expect some months we’ll be paying about $25 for that, but if we end up producing more than we consume, it will be partially offset by net metering. The proposed replacement program for the current net metering program wouuld take that minimal required monthly amount and make it a much larger fee based on the size of the solar system. In our case, it would create a monthly grid connection fee of $120 even if we didn’t use any grid power. That’s one reason to get solar installed before a replacement for our current net metering program is finalized.
Also, a utility near me recently stopped net-metering, and made it retroactive, meaning that solar customers who already had a contract to get net metering, no longer did. There is a lawsuit going on about that now.
Yeah, that’s part of the current battle in California as well. When our current Net Energy Metering 2.0 program started in 2016 it included a 20-year term for systems adopted under NEM 2.0. Although there was a clear expectation that the net metering program would be modified before then, it was a commitment to early adopters to allow them some certainty about the value of their large up-front investment. The most recent proposed replacement program cuts that guaranteed net metering term to 15 years for solar owners who connected under NEM 2.0 and 10 years for solar owners under the proposed replacement program. I don’t have a problem with the California Public Utilities Commission changing to a new program–their job is to advance the environmental, financial, and equity goals of the state and that requires compromise that might not be great for me because they want to make it good for someone in another situation. If I’ve done my job as as member of the public to participate in the discussion, I can live with the results even if I disagree sometimes. I DO have a problem with making a retroactive change to a commitment they made previously. There had better be a really good reason for that sort of thing and “we think we made a mistake and want to change our minds now” is not a good reason. In a state flush with high taxes and a huge budget surplus there are plenty of ways to redistribute wealth without breaking a promise. *Ok. I’m getting off the soapbox now.* Thankfully the public uproar and the governor’s comments about it have caused CPUC to pause and rethink the proposed decision. There are a lot of details to go, but whatever the final decisions, it’s going to be significantly less helpful for solar owners under the new regime, so we’re planning on getting our system installed under the old. We’ll have to see how the replacement program shakes out later this year.
What does your insurer say about solar panels? My home insurer says I will have to pay extra for the panels. It won’t be a whole lot extra, but panels will add to my insurance costs if I get them.
We expect to pay higher homeowners insurance premiums when the panels are up. We’re actively requesting that the insurance company increase the value of the policy (and thus the value of the premiums.) The replacement cost of the home will go up by nearly $70,000 with the solar in place, and we want to be sure our insurance will cover that value. No skimping on protection for our largest financial investment, even though it will cost more every month.
Also, the battery backups have to be replaced after 10-15 years – will that cost be figured into your total savings?
Our panels won’t include any battery storage. When the sun is down or obscured, we won’t be producing power; we’ll be drawing from the grid and counting on net metering to make up the difference. Right now battery storage doesn’t make sense for us. Financially, they’re really expensive and net metering gives us an attractive financial package without them. (One goal of the upcoming successor to current net metering is to encourage more battery backups.) If we did include battery storage in the system, we would be adding a few years directly to the time needed to recapture our investment AND buying more future maintenance than I want to take on. Practically, we only lose power a few days a year and already have a generator and a smaller portable battery for charging electronics, so a full battery backup wouldn’t make a big difference to our family’s life. Environmentally, when we take the externalities into account, I’m not fully convinced that current batteries are a lot better than generating the additional power using existing infrastructure and grid distribution. Changes in battery technology or policy might make it worthwhile to add storage in the future, but for now, we’ll go with plain panels and a net metered grid connection.
I hope those thoughts are useful. Every state and every utility has a different approach, so it’s definitely important to check out your own options, and it sounds like you’re doing that thoroughly. Good luck on your consideration.
Thanks for the well-written reply! I live in a heavily forested area of Florida, where short outages due to trees and limbs are frequent and longer ones due to hurricanes may be so infrequent as to occur only once every few years, or may happen four times in one year, as we experienced a few years ago, when we had four hurricanes in six weeks. Backup was one of the major reasons I am considering solar.
I am also considering an in-place generator, but I have no access to natural gas, and would need to maintain a large supply of propane, plus hope that I could get a propone delivery if needed during an extended outage. Our current portable generator is no longer working and required gasoline, which became unavailable during the last hurricane.
I will greatly appreciate hearing more about your experience with solar! Thanks again for the thoughtful answer.