Most folks expect to have a fantastic return on their investment when they spend their money in things that save energy. They don’t complain when the checking account only earns 1/10%. They don’t complain when their savings account only pays 1.5%. They sure squawk if their new air conditioner only earns a 20% return on their investment. Business managers that make decisions to invest money usually look at Return On Investment (ROI), the pay back time, or some other more complex measure. They are asking the question, “If we borrow the money to pay for this, will it pay back the loan and make a reasonable profit?”
3 Ways homeowners can look at spending for saving energy.
If I buy this item with my credit card, will it pay for itself? Will the monthly savings pay the credit card interest payment plus some? If the monthly savings will be 5% of the purchase price, it will pay for itself in about two years. If not, do not buy it by borrowing with a credit card.
If you have the cash to buy it already in your pocket, check the return on investment. Divide the expected annual saving by the purchase cost. This will give you the gross percentage that your investment will earn. My 401K earns about 8%. More risky investments earn more. What percentage return is reasonable to you?
Investing in energy saving equipment is a very low risk investment. Energy prices are not expected to go down. As energy prices go up over the next few years, your pay off from investing in energy savings now will be even better.
With a 20% ROI, your investment will pay for itself in about 5 years. The question becomes, will it pay you back before it wears out or becomes obsolete?
- Budget minded folks focus on their monthly payments. Many people will buy a car based solely on the question, “can I afford to make the monthly payment?” It may take five years to own it, but that is what they do.
They should look at the buying a new central air conditioner, heat pump, or furnace the same way. Will the savings pay off the monthly installment payment so I will own it, free and clear, in five years?
Five years is a reasonable pay back time for major items that will last for 20 years or more. Too bad your car will not last that long.
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