The Cheapest Way To Go Green

It wasn't so long ago that setting aside one day each April was all the attention many of us gave to the environment. Now, though, making eco-friendly purchases and lifestyle choices has become such an important part of our routine that every day is Earth Day.

But in these tough economic times, it's vital that your resolve to "do good" doesn't lead you to make bad financial decisions. The reality is that while many green actions, such as installing double-pane windows and buying a hybrid car, are great for the environment and can save you money over time, the up-front costs are higher than the standard alternatives.

I know there is nothing more worthwhile than taking care of the environment so our children and grandchildren will live in a healthier and more stable world; all I ask is that going green not put you in a pile of debt or derail any of your important financial goals: Choose eco-friendly projects that are also economically friendly. Here's how to reduce your carbon footprint without compromising your family's security.

ACT GREEN BEFORE YOU BUY GREEN

There's no rule that says you have to spend money to live in a more environmentally conscious way. Your first project should be to reduce your energy consumption through acts of conservation; it's good for the planet and your finances. Pull out your utility bills from the past year and set a goal to reduce costs by 10 percent compared with the same months a year earlier. If you have kids, how's this for motivation: Offer to give them 50 percent of the savings if your family meets its target. That should get lights turned off when rooms are vacated, marathon showers shortened, and groans eliminated when you suggest adjusting the thermostat up or down a few degrees to reduce cooling and heating costs. Check out conservation tips from the U.S. Department of Energy at EnergySavers.gov and from Worldwatch Institute at WorldWatch.org (type "10 ways" in the search box).

SET YOUR GREEN BUDGET

You can make eco-upgrades with any amount of money—a few hundred dollars for an energy-saving TV and telephone, or upwards of $25,000 to line your roof with solar panels. Based on your financial health, set aside a reasonable sum to cover the projects. If you have your heart set on a major overhaul, promise me that you will first sit down and make sure that your green initiatives dovetail with other important investment goals, like funding a Roth IRA or buying a life insurance policy. This is about striking the right balance in how you allocate money to the different sectors of your life.

Home equity lines of credit (HELOCs) and home equity loans (HELs) have been two popular ways to finance big-ticket home improvement projects in the past. But remember that your house is the collateral for these loans; fall behind in payments and you could put your home ownership in jeopardy. I typically reject using this kind of line for a "want," such as an outdoor fireplace or hot tub. So what's my verdict on tapping home equity for a do-good purchase like $20,000 for draftproof windows? I approve of such financing for an eco-friendly upgrade if-and only if-you follow these rules:

• You have no credit card debt and your retirement savings are on track.
• You have enough saved that if something happened to your job, you could pay off the HELOC or HEL from your emergency fund and still have eight months of savings left over.
• Your project has a high "payback," meaning that you could recoup much of the cost if you were to sell your home. Remodeling magazine has a great online chart that shows cost versus value for various projects (Remodeling.HW.net/2009/CostVsValue/National.aspx).
• Pick projects that future owners will find desirable; check with a local real estate agent to see what buyers in your area value most.
• If using a HELOC, aim to have it paid back within three years. Most are variable rate loans that are tied to a general interest rate; because of our federal debt, I expect interest rates to rise in the coming years, which means HELOC rates will rise as well.

How to make changes for less

GIVE YOUR HOME AN ENERGY AUDIT

Once you have set a budget, your next job is to figure out the most cost-efficient green projects. According to Harvard University's Joint Center for Housing Studies, if all the homes built before 2000 used as little energy per square foot as those built in the past decade, our national residential energy consumption would decline by about 22 percent and owners of older homes would save about $400 a year on average. To get a sense of how energy-efficient your home is and what projects are worthwhile investments, use the free online Home Energy Saver tool at (HES.LBL.gov).

You can also pay for a professional energy audit that scours every nook and cranny of your home to determine exactly where it is losing energy (and money). But these thorough checkups can cost $300 or more, so go this route only if you plan to spend a few thousand dollars in upgrades. Even better, check your local utility to find out if it is offering subsidized or free energy audits. You should also contact your state's energy department to see if it has any programs to help defray the costs of audits or energy improvement projects, and search the Database of State Incentives for Renewables and Efficiency at DSIREUSA.org. To find a qualified auditor, go to EnergyStar.gov, click on Home Energy Audits, and use the Energy Star for Homes Partner Locator tool.

MAKE CHANGES-FOR LESS

If you're in the market for a home appliance, check your utility company's Web site for the latest information on what rebates may be available for energy-efficient models. Last year's massive federal stimulus package earmarked $300 million for states to offer rebates to residents who purchase qualified Energy Star appliances-those programs are being rolled out in 2010. Each state has a finite amount of money it can dole out; once that money has been spent for a given year, the rebates cease. So if you intend to replace an appliance in 2010, the sooner you apply for the rebate, the better.

In addition to rebates, you can also claim a credit on your federal tax return for energy-efficient home upgrades. I love this because a tax credit is far more valuable than a tax deduction, which only reduces your taxable income; a $1 credit reduces the tax you owe by $1. This program is good through the end of 2010 and can be used to recoup up to 30 percent of the cost of energy projects such as stuffing walls with new insulation and upgrading heating and cooling systems. To claim the maximum $1,500 credit, you need to spend at least $5,000 on qualified projects. This credit program was also in effect in 2009; if you claimed the full credit in 2009, you can't come back for more in 2010. That said, as I write this, Washington is contemplating a new stimulus program that would offer another round of tax incentives for energy-efficient projects. I'll post information on my Web site if that program takes off. To learn more about federal tax incentives for green projects, go to EnergyStar.gov/TaxCredits.

If your car tops the list of things that need improvement, tread cautiously. I wish we all had the money to drive the most efficient vehicles, but a new car-even a green one-is still a depreciating asset. Some ground rules: If you can't pay in full, take out a loan. Do not lease! (Leases have hidden costs like assessed "wear and tear" charges and extra fees for miles above the allotted yearly amount, plus you won't get a good deal at the end of the period if you want to purchase the car.) Go ahead and take out a loan for that hybrid you've been eyeing only if you follow the same rules I listed for taking out a HELOC or HEL, your FICO score is at least 700 (which will mean a low interest rate), and the loan term doesn't exceed 36 months (again, to keep interest to a minimum). If you can't afford a new car with these terms, check out certified pre-owned models from dealers-yep, there's now a market for used hybrids with manufacturer's warranties; contact a dealer to see what is available.

Check out tips on how to make green investments or ask Suze a question.