Sunday, March 31, 2013

Investing in energy-efficient lighting

tl;dr I just saved a bunch of money by replacing some light bulbs with energy-efficient alternatives. Once you're debt free, your most profitable investments may be in energy efficiency upgrades.

Ever since I paid off my student loans, I can be a bit more relaxed with money. For an upstanding Mustachian that doesn't mean daily or even weekly lattes at Starbucks. It means that, now that I've exhausted my 6.8% guaranteed-return investment opportunity (i.e. student loan debt payoff), I have to search for other attractive investment opportunities.

I want to fill you in on one such "investment" that we made: replacing a bunch of light bulbs and fixtures with energy-efficient compact fluorescent bulbs (CFLs). I did not do a cost-benefit analysis before making the plunge; well, nothing besides thinking "gee, I bet I can save money on electricity with CFLs since that feels like the prevailing wisdom nowadays". I want to do that cost-benefit analysis now to see how good or bad an investment we made, and to give ball-park figures for your own energy efficiency improvements.

We made two changes: first, we replaced six overhead light fixtures in the basement and hallways; second, we replaced the decorative globe incandescent bulbs in both our upstairs bathrooms with CFL equivalents.

Since we moved into our house, I have hated the light fixtures in the basement. They were these brass-colored fixtures whose covers were in various stages of falling apart. Maybe they looked good when they were original, but they certainly didn't look good when we arrived. (I wish I had a picture to show but I'm not sure I took one. I'll post one if I do dig one up.) They took these bulbs, 25-watt globe with candelabra base. Six for the large fixtures, three for the small fixtures. I'm intimately familiar with this type of bulb because of the number of times I've had to replace them. I must have replaced dozens upon dozens of these bulbs in the less-than-two years we've lived in our house. I'm not sure why, but after replacing all the dead bulbs, the first burn out would occur within a week or two. Then in the next month or two we'd lose another one or two (this is per-fixture, by the way). The net effect was 1) most of the time half our bulbs were burnt out, 2) way too much time spent replacing bulbs, and 3) way too much money spent replacing bulbs.

I forget what the last straw was, but in late January I went to Lowe's and bought new fixtures. We decided on a chrome finish and frosted glass (see pictures). For three large fixtures and three small fixtures, the total cost was $224.78. Each came with a single CFL that retails at somewhere between $5 and $7 (I haven't had to replace any in the two months we've had these fixtures installed).

The old fixtures used 27 incandescent candelabra bulbs at once. I'd guess that on average half were burnt out, so let's say there were 14 on when the lights were on. That's 350 watts for the old fixtures. The new bulbs use 27 watts each, but there are only 6 of them, so that's 162 watts. If I had to guess at how much we use those lights, I'd say 4 hours per week night and 10 hours per weekend day, for about 160 hours of lighting per month. That means about 30 kWh saved per month, at a cost of around $3 per month. Even if I'm way over-estimating our lighting usage, half that savings is $1.50 per month which is pretty good.

I'll admit these are very rough estimates. But I think they clearly demonstrate that investing in energy efficiency offers great returns. Investing $250 at a safe withdrawal rate of 3% will give you around 62 cents a month for the rest of your life. Buying and installing new light fixtures in my basement cost less than $250, and is saving us somewhere north of $1.50 per month

It would have been even better if I didn't totally hate my basement light fixtures, and I could have just replaced incandescent bulbs with CFLs. As luck would have it, that's exactly what we did in our upstairs bathrooms.

Between the two upstairs bathrooms there are 18 light bulb fixtures. Here are the CFL replacements: G25 globe with medium base. They say they're 40-watt replacements but all the bulbs we had were 60-watt bulbs so that's an even bigger energy savings. At $20 per 3 bulbs, our initial outlay was $120. Here's the equivalent incandescent bulb at Home Depot, at $6.42 for 4 bulbs, or about $1.60 each (versus $6.67 each for the CFL version). The CFL says it lasts 9.1 years based on 3 hours per day, or around 9970 hours. The incandescent advertises 1500 life hours. So not only are CFL life hours cheaper, but CFLs are also cheaper to operate. How much cheaper? 3 hours per day, 30 days a month, times 18 bulbs at 60 watts each is 97.2 kWh. At ten cents per kWh that's $9.72 per month. For 40-watt incandescents that number is $6.48 per month. For CFLs it's $1.78 per month.

One minor word of warning: the bulbs take about a minute or two to warm up. During the warm-up time the interior CFL coil is visible so you may consider it unsightly. It's not something I mind now that I'm used to it, but it's something to be aware of.

We're saving $7.94 per month with the new bulbs (at 3 hours per day of use). That kind of income would take a stash of over $3k at a 3% SWR. Well worth the $120 outlay for the bulbs. And that's not even counting the lower cost to replace the CFLs.

Here's a chart summarizing the above data:
40W Incandescent 60W Incandescent CFL
Cost per bulb $1.60 $1.60 $6.67
Life-hours 1500 1500 10000
Cost per thousand life-hours $1.07 $1.07 $0.67
Cost per year (3hr/day, $0.11/kWh) $4.81 $7.22 $1.32
Lumens 370 660 500

In conclusion, once you're debt free, your most profitable investments may be in energy efficiency upgrades.

Saturday, March 2, 2013

From debtor to creditor

Well, I did it. As of February 25th, when my final payment cleared, I am officially free of student loans.

It was somewhat anticlimactic — a part of me wanted animated fireworks or a "Congratulations!" from the Department of Education website — but I've been feeling really good about it all week. This evening we're getting together with friends to hang out and celebrate.

Below is my entire payment history on my federal loans. It starts after I consolidated my loans. As you can see, I didn't pay the minimums for long: I paid off my private loan in May of 2012, and started paying this one off aggressively thereafter.

In December 2011 I set forth to pay off my student loans in two years. It took me 14 months. This is good news, since it means I can start building my stash ahead of schedule. The bad news is the almost $9k of 0% credit card debt I've amassed during that time, which I must pay off by April 2014 to avoid finance charges. If I were to attack that debt as aggressively as I attacked my student loans, I would be free of it around July.

I mentioned in this post's title that I'm becoming a creditor. I've started investing with Lending Club. I first heard about Lending Club from Brave New Life, and most recently of course Mr. Money Mustache has taken the plunge. I decided that now my excess income has nowhere to go, I wanted to earmark most of it before it even shows up as a commitment device to keep saving and investing. One such commitment is $500 per month to Lending Club, which at $25 per note (the smallest amount you can invest at a time), means I can invest in 20 notes per month. This means I won't be fully diversified for quite a number of months, which is an additional risk. I am hoping to counteract this risk by being extra picky about which loans I fund — in this case, I intend to submit two or more questions per note I'm potentially interested in, and only fund the notes where I'm satisfied by the borrower's answers.

After building up a cash buffer of around $2k, I'm going to make a similar commitment of funds (probably via an automatic bank transfer) to a brokerage account. This way I won't burn a hole in my pocket, and I'll have spare cash around to jump on attractively-priced equities whenever an opportunity arises.

Paying off my loans is great, but it's one step in the journey. Now I can finally start focusing on asset accumulation which I've really been looking forward to. I'll also keep working on debt reduction since I feel like I won't feel truly free until I'm debt free. That will take a while but at this rate I know I'll get there.