With so much uncertainty in the world, it’s difficult for me to allocate incremental capital to traditional investments right now. I’m currently dumbfounded by the performance of the stock market and I’m waiting to see how this pandemic spills over to the real estate market. While I wait, I continue to build our war chest of cash, while simultaneously looking for creative ways to manufacture financial returns. Since mid-March when the COVID-19 outbreak started dominating our lives, I shifted the majority of my focus to things I could control, like our expenses. I’ve gone through a detailed analysis of all of our outflows looking for opportunities to cut out unnecessary spending.
Like many, if not most, we are naturally going to spend a lot less money this year because of the restrictions placed on our lives in order to combat the virus. This means significantly less eating out, less shopping, and little to no travel (three of our larger spending categories). In our “GYFG Historical Expenses” below, you have to discount the “House Mortgage & HOA” category as it had historically included the additional funds we were paying towards the mortgage, which is why you see a line that deducts these additional principal payments from the total spending to arrive at adjusted spending. As I’ve explained many times in the past, these payments were merely balance sheet transfers and not a true expenses.
Besides our spending naturally declining due to the shelter in place orders we are currently living under, I’ve also made an effort to cut certain expenses, which include:
- Switching from Verizon to Mint Mobile (saving $2,100 annually)
- Negotiating with the insurance company that holds our car and home policies (saving $1,200 annually)
- Canceling or reducing other miscellaneous expenses (saving $4,400 annually)
Although we have been doing plenty of home improvement projects during the lockdown, the projects we have undertaken are relatively cheap compared to past home improvement projects. When you tally it all up, our spending will be down $87,870 or 42% vs. 2019 (our largest spend on record). This also puts us on pace for the lowest spending level since prior to 2015.
A dollar saved is a dollar earned!
The end goal is to get a little wealthier every day through both good markets and bad. With potentially less certainty in our income this year, this is an easy way to still continue progressing towards our financial goals. I typically prefer to do this by focusing on the income side of the equation but sometimes I need to be flexible.
But wait, there’s more!
Back in 2015, we decided to invest in the power of the Sun by installing a solar system on our roofs. This has been an incredible investment that has saved us approximately $2,500 per year on a $10,000 net investment. The keen observer quickly realizes that this is a 25% annual return – not too shabby! Over the years our electricity usage has continued to increase for various reasons and in 2019 our net bill to the electric company was about $950, meaning our solar system was not able to produce enough electricity to cover all of our needs as it did when we first installed it. I expect the minimum annual bill for being connected to the grid to be about $120/year.
Well, the price of solar has decreased, and the federal government is still giving tax credits (now 26% in 2020). So, we are now under contract to double the size of our solar system for a net cost of $8,880. This investment will end up saving us $830 per year (when you net the minimum payment to the electric company). If you perform the simple arithmetic, that translates to a 9.3% return per year.
But wait, there’s more!
The battery technology has come a long way since we first installed solar. Tesla has their battery wall but the cost is high. We got a quote for two battery walls – the recommended amount for our size house – and the price for two is $27,500. Without any rebates or tax credits, that cost doesn’t make financial sense. But this is where it gets really interesting. Like the solar system, there is a 26% federal tax credit. In addition, the state of California is offering up to $26,400 for two power walls (or other equivalent battery storage systems – see Self Generation Incentive Program). The minimum rebate in California is $3,000 per battery wall, but we qualify for the maximum amount. And the California rebate has no impact on the federal tax credit! Suffice it to say, we are also now under contract for two Tesla Power Walls and the company we are working with has just submitted our application for the rebate (we only move forward once they secure our rebate).
Let’s do the math:
|Federal Tax Credit @ 26%||($7,150)|
Assuming everything goes as planned, we will actually get paid $6,050 for installing these Power Walls. When looked at together with the expansion of our solar system, this puts our net cost at $2,830, with a net annual savings of $830 per year (or 29% annual return).
Sometimes you have to get creative and engineer a return!
These are just a few of the activities I’ve been up to during the last two months of “shelter in place” orders. These are the best opportunities I see right now.
– Gen Y Finance Guy
p.s. There is one other opportunity I see that I will share in the near future. You know me, so you know it will not be something most would pursue!!!