Sometimes you have to spend money to save money

Paying for something that improves your life in the future is okay! (credit)

I forgot to check my blog’s email until recently and was very surprised to see that a couple of people had contacted me – thank you readers! This post is dedicated to one of them asking a pretty good question regarding the electric moped article’s conclusion.

“Instead of reducing your friend’s outgoings by switching to the moped instead of his car, haven’t you actually massively increased his outgoings for the next 3 years?”

Anonymous reader

I should point out that a couple of assumptions have been made here by our anonymous reader. Presumably we are assuming that my friend did not outright buy the moped with cash and has financed it or otherwise gotten a loan to pay for it. Also in the original post I think we determined the payback was roughly 2 years as well, but in fairness I hadn’t factored in him taking the CBT, getting a helmet and adequate riding clothing so maybe that would be nearer the mark.

So I thought it would be interesting to explore how my friend could potentially buy said moped with a couple of different options and then we’ll get into the meat of what this blog post is about – yes, sometimes you do indeed need to spend money to save money – as paradoxical as that sounds!

Moped financing options

Scenario #1: Person has enough cash on hand to buy moped outright.

In this instance the person gets immediate benefit from the new shiny electric moped and their monthly running costs are immediately reduced. Here they are looking just at what amount of time it would take for the moped to pay for itself (fuel costs vs price of moped and electricity costs) which was covered in the original article.

Scenario #2: Person finances on a 0% spending credit card and pays minimum.

The person applies for a 0% spending credit card, slaps the moped on that and then just pays the minimum balance (assumed to be 2.25% a month of the outstanding balance).

Scenario #3: Person finances on a 0% spending credit card and pays off in equal chunks.

The person applies for a 0% spending credit card, slaps the moped on that and then pays the amount off in equal chunks spread over the 0% months offered. I will assume 24 months based on a similar credit card I own.

Scenario #4: Person has poor credit and finances at 9.9% APR from seller over 2 years.

Perhaps your credit score is not good enough for one of those 0% cards and you don’t have the money on hand to buy it outright. Then in the worst case, a loan from the seller of the moped may be available, usually at a fairly high rate. Based on one of the sites where you can actually buy this moped, they offer a 9.9% APR loan so we’ll use that.

Let’s chart out these options and compare in how my friend has several options that could leave him better off or worse in the near term but better in the long term.

Graphing out the scenarios

ScenarioDescription
Scenario #1Bought outright with cash.
Scenario #2aBought on 0% card, paid minimum
Scenario #2bBought on 0% card, paid minimum + fuel savings
Scenario #3aBought on 0% card, paid 1/24th back
Scenario #3bBought on 0% card, paid 1/24th back + fuel savings
Scenario #4aBought on 9.9% APR loan over 2 years
Scenario #4bBought on 9.9% APR loan over 2 years + fuel savings
A table summarising the scenarios outlined in the graph below
Chart comparing the scenarios (click to enlarge)

Taking the same scenario from the original article, my friend would be doing roughly 660 miles a month commuting to his office and back. We worked out his monthly savings from not driving his car would be about £110.52. He could either keep those savings to himself every month or he could put it towards the debt he took out to buy the moped (assuming he didn’t just use cash to buy it). Below is how much extra money he would have each month with each option (or less) at the beginning.

ScenarioOutcome
Scenario #1+ £110.52 a month (but bought moped with existing savings)
Scenario #2a+ £54.48 a month on average (but still has £1,851 to pay off)
Scenario #2b– £34.64 a month on average (but owns moped at the end of ~2 years)
Scenario #3a– £22.65 a month (but owns moped at the end of 2 years)
Scenario #3b– £169.65 a month (but owns moped after ~1 year)
Scenario #4a– £36.77 a month (but owns moped at the end of 2 years)
Scenario #4b– £147.29 a month (but owns moped after ~14 months)
A table showing the savings per month for each scenario

The wonderful thing about money is there’s generally several options to how to buy something. If you happen to have the savings upfront, you are basically getting a £1,326 return on your money every year as you immediately get to enjoy the fuel savings, equal to roughly a 41% return on investment.

If you’re stuck for cash but have a good credit score, you could borrow the ‘free’ money and stretch the payments out and you could still enjoy savings of over £50 a month in Scenario #2a! You of course do need to find the additional £1851 to pay off your 0% loan after the 2 years are up but I’d hope that’s not a struggle if you’re being smart with your money (you should have at least £1,300 from your fuel savings over 2 years *ahem*).

Where the debt is 0% I would try to stretch out the repayments to the maximum length of that period and no more so that I’m maximising the loan, thus Scenario #3a makes the most sense to me personally. Paying £22.65 a month for 2 years seems pretty reasonable. That’s less than one restaurant meal a month! And at the end of the 2 year period the moped would be owned by me and immediately I can ratchet up to saving £110.52 a month.

Whereas if the loan had a high APR I would be killing it ASAP, putting all my fuel savings into killing the debt such as in Scenario #4b. Yes, the moped is actually costing you an extra £150 a month, but the short term pain would mean that the moped would be owned by you faster and you’re paying that horrible interest rate for the minimum period possible. From month 15 onwards you can start enjoying those sweet sweet fuel savings properly though.

Of course these options exist for many aspects of life

This kind of thinking can apply to multiple areas of life. I mean there’s a reason people buy season tickets for trains – they work out cheaper over the longer term. I know I was never particularly happy about having to buy a season ticket into London in my old job but financially it made sense and my work offered 0% loans specifically for this so I took advantage of the scheme.

Bulk buying in supermarkets is another common example. A 10 kg bag of rice when compared to 10x 1 kg bags of rice is likely to be substantially cheaper (if a pain to get home without a car). Of course a 1 kg bag is much cheaper than a 10 kg bag on it’s own, but if you get through enough rice in a year it can make obvious sense.

Trading in your low MPG car for a higher MPG one? Same thinking.

Moving closer to your work place so the commute is shorter and less costly? Same thinking.

Higher upfront cost but lower ongoing expenses. Just make sure what you’re buying will actually be used as much as you expect, else it could have been cheaper to keep paying the ‘non-discount’ price. A good example is my wife and the local swimming pool. She likes to go once a week and they offered her a year membership (paid monthly). However, it worked out cheaper for her to just pay as you go once a week than bother with the hassle of the yearly payment. If she moved up to twice a week I think it would be marginally cheaper to take the membership but I imagine she’d still avoid it as some gym memberships are just an absolute pain to cancel (speaking from personal experience).

Have you made any purchases or decisions with a higher upfront cost that leads to lower ongoing costs? Let me know in the comments below!


Just £20,000 to save the world

Fling a light into the future, your children and grand-children will thank you (credit)

The timing of this post is probably not the best, but I wanted to write it anyway just so I can link to it in the future. It also became more relevant to me after a couple of conversations I had with my my Dad and one of my Uncles. Get comfy, this is going to be a long one.

We were discussing things like the quarantine, how a couple of my cousins were on furlough, what do you think the future will look like afterwards and we also got on the topic of solar panels and how more cars in the future will probably be electric. As you may know if you read this blog, I am very keen to get as many people as possible to buy into these technologies and accelerate the UK’s reduction on oil, gas and coal. The window to make this change is short and the sooner we start the better.

“You could install solar panels and buy a used electric car you know? I’ve done it and it works really well!”, I said.

“Nah, nothing I do will really make a difference. Plus it costs a lot of money to do and I may not be alive long enough for it to be worth it.”, said my Uncle. My Dad also agreed. They’re both just entering their early 60s.

This is the same man who recently spent over £40,000 doing up his kitchen. Now let me be perfectly clear here: It’s their money and they can spend it absolutely any way they want. I have no problem with that. What I do want to do in this post though is show just how much of a difference they really could make for a (relatively) small amount of money. I’ve done the leg work to show you just how big an impact you can have.

So before we begin, this is an appeal to the following people. Even if you aren’t one of the below yet, you may well be in the future. I only ask you keep this in mind when the time comes.

You are:

  • A homeowner in a detached / semi-detached / bungalow property
  • Have off-street parking
  • Have no debts other than your mortgage
  • Have potentially up to £20,000 available / willing to invest in alternate strategies

I’m aware that’s a bit of a tall order, but anyone who’s interested in their finances will get there at some point. It doesn’t matter if you’re 30 (like me) or over 60. If you read this blog or any of the other excellent FIRE / investing ones I guarantee you’ll get there one day.

The CO2 impact of the UK

In 2018 the UK produced, as a whole, 451.5 million tonnes of carbon dioxide equivalent. Here’s a breakdown of what that amount consisted of:

For this discussion I will be focusing on the three I think you can make the biggest impact on right now: Transport, Energy Generation and Residential. These make up 66% of that graph.

Your house

The average household in the UK uses 5,129 kWh of electricity a year (based on 2014 data). Each kWh used releases about 309g of CO2. So the average household is releasing 1,584 kg of CO2 every year. You can estimate your own true amount below.

CO2 (KG) produced per yearly household electricity usage

Your car

The average new car in the UK gets a (stated) mpg (miles per gallon) of around 50.5 for petrol and 57.9 for diesel. The CO2 produced per mile is roughly 194.4g for a petrol car and 197.4g for a diesel car. The average car in the UK does 7,600 miles a year, with petrol cars on average travelling 6,600 miles and diesel cars on average travelling 9,400 miles.

So the average new petrol car produces about 1,283 kg of CO2 a year and the average new diesel car produces 1,827 kg of CO2 a year. You can estimate your own true amount below.

CO2 (KG) produced depending on car MPG and yearly mileage

If you’re keeping track so far, your home and one of your petrol cars (I can safely assume you have at least two cars) is producing, on average, 2,867 kg or nearly 3 tonnes of CO2 a year. If you’re above average in driving mileage or energy usage you’ll be doing even worse.

You may be going “Holy crap, that seems like a lot!” or you may be thinking “And so what?“. Either way I’d like to make a point about how the UK is looking right now.

Coronavirus Impact

To steal a line from one of Ermine’s posts: “I live in a small town so air pollution is low here, but even so the drop in traffic makes one’s sense of smell more acute as Nature blooms.”

I live on the outskirts of London and the difference has been remarkable. My wife suffers from asthma and she’s definitely noticed a difference when we walk along the main roads. What has changed? There’s far less cars travelling about. That 28% of CO2 emissions from transport I mentioned above? I wouldn’t be surprised if it was down to 5% for the past couple of months as we’ve all been cooped up inside and (hopefully) able to work from home.

For the past 25 days and counting, the UK has not burnt any coal to generate power.

How much coal the UK has been burning every day over the last few years (credit)

This is while we’ve all been stuck inside and probably using more power than is usual, such as more cooking at home, using laptops and watching TV. This has predominately been due to the explosion in renewable energy being rolled out (mainly solar and wind) and also some expansion in gas power stations. The future is here now and the technology works.

Spending to save the world

What I list here is essentially a subset of The Solar House Experiment but focused purely on reduction in emissions to price. First we’ll go through the components and then just how much they can be expected to reduce your emissions in their lifetimes. You could purchase these in any order but let’s go from simplest to hardest to estimate as these all have synergies with each other.

The Car – About £9,000

First up is to replace one of your cars with an electric one. Here is a perfect example of a great small electric car you can use to pop to the shops and get around to see the family: the Renault Zoe with a 40 kWh battery.

Renault Zoe with 40 kWh battery on AutoTrader

Perfectly capable of 150 miles of range in the summer, and over 120 miles in the freezing winter. All yours for less than I paid for my 1 year old Ford Focus about a decade ago. If you ever need to go further than 150 miles in one go you could either use the expanding network of rapid chargers found at all good motorway services, else feel free to fire up your petrol / diesel car you still have if you’re too old to deal with the hassle.

The average length of a commuter trip by car / van is about 10 miles. In London the average is 8.6 miles and you don’t have to pay the congestion charge in this beauty. This is well within the capabilities of the car.

How much CO2 does an electric car produce per mile? While it has no tailpipe emissions, the electricity to charge it has to come from somewhere. As mentioned previously, a kWh of electricity is roughly 309g of CO2 on average so let’s use that number (it’s actually less at night when most cars are charged but let’s give the petrol and diesel cars a chance).

A rough guide for electric cars is that 1 kWh of battery power can move a car about 4 miles, therefore per mile an electric car produces about 77g of CO2. Let’s compare that against an average new petrol and diesel car.

Comparison of CO2 against a new petrol and diesel car with a typical electric car

Just in case you missed that – replacing one small efficient petrol car with a small electric car results in a reduction of 61% of CO2 emissions. For the average mileage of a new petrol car that is a reduction of 782 kg of CO2 per year. For the average mileage of a new diesel car that is a reduction of 1,114 kg or over a literal metric tonne!

The Solar Panels – About £6,000

Solar panel prices have been steadily dropping for the past decade or so. While it is very unfortunate that the Feed-In-Tariff scheme has ended, there are still major savings to be made if your usage is high. Again the average UK household uses about 5,129 kWh per year of electricity.

Again, I’ve done the leg work for you and gotten quotes for a 4 kWh system with inverter and installation costs. This was for a simple one roof install like the image above, which would include 16 panels. The quotes varied from around £6,000 up to £7,500 but with some haggling I’m sure you could get it slightly lower. Solar panels all come with a 25 year warranty these days and will probably last over 30 years comfortably.

A low-cost panel 4 kWh system in the UK will produce about 3,400 kWh a year. On average a household will use about 40% of that energy through normal usage but this can be boosted to over 60% if you’re smart with when you run your dishwasher, washing machine, oven, etc. Whether or not you use the generated power, you are either not drawing power from the grid and thus the grid is producing less energy or you are exporting your clean power generation to the grid for someone else to use, also offsetting the grid energy.

As detailed before, a kWh of grid energy generates roughly 309g of CO2. By reducing or exporting your energy usage by 3,400 kWh you are saving 1,050 kg or just over 1 tonne of CO2 from being released.

The Solar Battery – About £4,500

I thought about not including this because I decided that right now the financial numbers didn’t quite make sense for my usage. But we’re dealing with the average household here, not my super low usage one. Solar batteries help boost your returns on your solar investment and also allow you smooth out some of the variability of the British weather. While they don’t decrease your CO2 emissions as a whole, they do help lower your own personal usage which may be important to some people.

Moixa’s solar battery is currently the best price / ROI on the market

Moixa’s 4.8 kWh (3.84 kWh usable) battery is the leader in price to storage for us average mortals who don’t have £8,000 lying about for a Tesla Powerwall. With a battery of this size, you will likely be able to retain and use around 80% of your solar generation. You could also charge it up on the cheaper overnight rates and use it when electricity is more expensive and / or the sun is hidden behind the clouds.

At an 80% utilisation rate of your solar, your household will be using around 2,720 kWh of electricity less than before, or a reduction of over 50% on your yearly electricity bill!

With these three relatively small changes – solar panels and a solar battery can be installed in as little as a day and a car can be picked up in one day as well – you can reduce your CO2 emissions by an astounding 1,832 kg – 2,164 kg a year on average if you make no other changes in your life. That is two-thirds less of what the average UK household produces.

The financials of saving the world

I don’t expect you to do good things for the world and your family for no benefit. These purchases are expensive no doubt, but think of it this way – this is only one year of an ISA allowance. Every part will last well over 10 years, with some lasting 30 years or more.

Let’s do some sums based on the above calculations and you tell me if it’s worth keeping this serene less polluted environment we’ve unexpectedly found ourselves in.

First of all, how much cheaper is it to travel by electric car than the petrol or diesel equivalent?

Assumed prices: £1.20/litre for petrol, £1.25/litre for diesel, £0.07/kWh for Economy 7 overnight tariff

This is before any savings from less maintenance requirements, no car tax and any savings you may make such as driving in the congestion charge zone in London.

Second of all, how much are you likely to save from your solar panels a year?

Assumptions: 40% self-consumption and 60% export at 5.5p/kWh with a 4 kWh solar system

The above includes self-consumption and export. You can be paid for every kWh you export, such as Octopus Energy’s Outgoing tariff which pays 5.5p per kWh.

And thirdly, how would the above look if you installed a solar battery and consumed 80% of your solar generation?

Assumptions: 80% self-consumption and 20% export at 5.5p/kWh with a 4 kWh solar system

Are you a Zero or a Hero?

With this new found information will you choose to do nothing or realise you have the power to make a significant difference in the world? To put all those pretty charts together into a nice summary – here’s what the future could look like for you 10 years from now.

Do NothingCarCar + SolarCar + Solar + Battery
Savings (£)£0£6,046 (petrol)
£7,564 (diesel)
£10,118 (p)
£11,636 (d)
£13,965 (p)
£15,483 (d)
Savings
(CO2 tonnes)
07,735 kg (p)
11,289 kg (d)
18,241 kg (p)
21,795 kg (d)
18,241 kg (p)
21,795 kg (d)
CO2 Reduction (%)0%25% (p)
37% (d)
61% (p)
72% (d)
61% (p)
72% (d)
Cost (£)0~£9,000
(car trade-in not factored)
~£15,000
(car trade-in not factored)
~£19,500
(car trade-in not factored)
ROI (%)0~6.7% / year (p)
~8.4% / year (d)
~6.7% / year (p)
~7.7% / year (d)
~7.1% / year (p)
~7.9% / year (d)
An estimated return on investment, based on the average household

If nothing else from the above table, you can take away the fact that while putting the money down to purchase these technologies isn’t cheap, it can be rewarding both from an environmental and financial aspect. Hell if you have an older car to trade in, you may be able to get the electric car for near free and the ROI shoots up massively!

I would be interested to know where you can get a 7%+ return on investment with little risk over a 10 year period.

So don’t tell me you can’t do anything about it. Instead, work out how to get it done. I’ve done most of the hard work for you – now work out which future you want yourself, your kids and your grand kids to inhabit. Time is running out.

Sources for research:
https://www.racfoundation.org/motoring-faqs/environment#a1
https://www.racfoundation.org/motoring-faqs/mobility#a1
https://www.fleetnews.co.uk/costs/fuel-cost-calculator/
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/6703/1750754.pdf
https://www.google.co.uk/publicdata/explore?ds=d5bncppjof8f9_&met_y=eg_use_elec_kh_pc&idim=country:GBR:FRA:ITA&hl=en&dl=en
https://www.eea.europa.eu/highlights/average-co2-emissions-from-new
https://octopus.energy/outgoing/
https://www.moixa.com/solar-battery/
https://www.theguardian.com/environment/ng-interactive/2019/may/25/the-power-switch-tracking-britains-record-coal-free-run