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?





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