How to take an Earth Day approach with your finances

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Doing your part to help protect the environment on this year’s Earth Day can be as simple as thinking twice about how you manage your finances.

Environmentalists and policymakers have called climate change one of the most significant issues of our time. With it comes threats to food systems, ecosystems and livelihood for billions of people. But you might not realize some of it also comes down to who you decide to bank with and how you allocate your cash.

Here’s how you can manage your wallet in a way that supports the environment – from banking and budgeting to spending, housing and investing.

Green finances begin with banking

1. The easiest of all options: Go paperless with electronic transactions and e-statements

When it comes to going green with your finances, start with something simple: Limit your paper trail.

Take a close glance at your finances and make a list of all the financial institutions you regularly work with. At the top of the list are banks, credit card and utility companies. Consider opting in to paperless statements across all of those firms, so you can receive any bills or notices over email or through an app. You might also end up saving money in the process, given that some institutions charge customers fees between $1 to $5 per month for receiving statements in the mail.

“Anything you can throw into the cloud rather than printing and saving, that’s going to be a win for Earth Day,” says Kacie Swartz, CFP, senior wealth manager at Stone Wealth Management, who specializes in finding environmentally sustainable and socially responsible finance strategies.

Along the way, consider sticking to electronic transactions as much as possible and using a credit or debit card instead of paper checks. You might also find success in using instant-payment services such as Zelle or Venmo if you’re trying to pay an individual.

2. Find a bank that cares about the environment – or better yet, go local

Many of the nation’s largest depository institutions are now vocalizing a commitment to sustainability. JPMorgan Chase, for example, announced in 2020 an ambitious plan to fund $2.5 trillion over the next 10 years to address climate change and contribute funds to sustainable development. Bank of America also said it became carbon neutral last year.

Yet, some of the nation’s depository institutions might still be invested in less environmentally friendly practices, such as coal mining pipelines or oil rigs. Remember the 101 of banking: Parking your cash in a savings account or certificate of deposit (CD) in any financial institution essentially acts as a loan for the bank. If you want part of your dollars to go toward funding environmentally friendly projects, make sure your financial institution aligns with your goals.

And in some cases, going local might be the best route, particularly if you’re worried about protecting the area where you live. That might be a credit union or local bank.

“Consumers could move the majority of their money from a big bank into a credit union,” says Nate Nieri, CFP, a financial planner at Modern Money Management that specializes in socially responsible investing (SRI). “Local credit unions that are really built for communities, all the money that is built into them goes right back out into the community.”

3. Consider online banks – and make more money along the way

You might find that banking with an online depository institution is the best route of all, simply because they maintain a smaller overhead and carbon footprint by not operating individual branches. You’ll also generally receive more bang for your buck, with online banks offering higher yields on your cash – in the best of cases, that could be eight times the national average.

If the environment is your first concern, perhaps you’ll want to select a sustainability-minded firm. Limelight Bank, the online division of Capital Community Bank, is an eco-friendly minded firm. However, it has some drawbacks, such as only offering CDs and limited customer service.

As always, shop around for an account with the best rate and terms that suit your individual financial situation.

Limiting your trips to depository institutions and instead using their online portal could also help reduce your bank’s carbon footprint.

Think about the environment when you save, spend and budget

1. Thrift your family’s wardrobe or household goods

Visiting your local consignment shops or yard sales for everyday items from furniture to clothing can be both environmentally friendly and financially rewarding.

The fashion industry contributes 10 percent of all of the world’s carbon emissions, according to a 2018 United Nations report. Clothing production also doubled between 2000 and 2014, with consumers buying 60 percent more garments. At the same time, clothing items are kept half as long, and 85 percent of all textiles are sent to the landfill each year, the UN also found.

No new resources are needed to produce that couch or those jeans you just snagged at your local thrift store. All of that means you’re reducing waste.

“If you’re buying secondhand, you’re not contributing to landfills by buying something new and throwing it away,” Nieri says. “And by donating, instead of throwing something away, you keep it out of the landfill. We kind of refer to it like circular purchasing.”

2. Limit your discretionary purchases and set aside a “green” fund for new energy-efficient appliances or additions

A sustainable reason for holding back on non-essential spending: You might free up extra cash that can be allocated for more pro-environment purchases.

Conscious consumers should consider opening up a separate savings account for a “green” fund. You can use that money to save up for things like energy-efficient appliances for your home, solar panels for your backyard or even an electric vehicle.

“Some of the things that you can do to your home to make it more energy efficient are frequently something you might need to save up for,” Swartz says.

While some energy-efficient products and appliances might be more expensive, they can save you money in the long run. Energy Star reports that its clothes washers, for example, use 25 percent less energy and 45 percent less water. You might even be able to “recycle” those extra savings back into your green fund.

Go green with your housing

1. Reduce your energy consumption and buy sustainable products

Once you build up that green fund, shop around for energy-efficient appliances that you can fill your home with. Consider purchasing LED light bulbs or other sustainable products. But there’s an even easier way: Limit your electricity usage.

That goes for more than just turning off the lights when you leave a room but also making sure you don’t leave on any appliances that continue to hog energy even when they’re idle. Those include toasters, hair dryers and flat irons, as well as coffee pots, microwaves, televisions and toaster ovens. A simple rule of thumb? If it leaves a light on while it’s idle, it’s using energy. It all adds up along the way – in some cases, an extra $100-$200 a year, depending on how many appliances you have, according to the Department of Energy.

Meanwhile, those plastic water bottles you buy at the grocery store? If you go with a reusable bottle instead, you’ll likely save on costs while also helping the environment. Ordering a drink at your local coffee shop? Bring in your own mug. Sometimes, establishments will even give you a discount on your beverage of choice.

2. Cook at home more

You might also benefit the environment by cooking at home during the week, which can help cut back on single-use plastics used for takeout and reduce the money you spend on food away from home. (Consumers spent an average of nearly $294 on food away from home, according to the Department of Commerce.)

3. Adjust your commute

Consumers are already used to working from home, more than a year after the coronavirus pandemic shut down offices and workspaces. But if it’s possible, see if you can continue working at home for part of the week, even once vaccinations are in arms and offices are reopened. Better yet, see if you can limit your business travel by opting into more virtual meetings and conferences. That might free up even more cash, with the average American spending $1,186 on gasoline in 2019, according to the U.S. Energy Information Administration.

4. Look out for tax credits and other money-making opportunities that can reward you for sustainable decisions

If saving more money on energy costs and helping the environment aren’t incentive enough, you might be able to claim tax credits and other tax-advantaged opportunities at both the state and federal level simply by “green-ifying” your home.

Those tax credits range from the well-known to the obscure. One such example: claiming the nonbusiness energy property tax credit can help offset up to 10 percent of costs of up to $500 on certain residential appliances from Energy Star, a joint program through the Environmental Protection Agency (EPA) and the Department of Energy (DOE). You can also claim certain tax breaks and credits for donating old clothes to charities, owning electric vehicles or making home-improvement purchases.

And if you own property, consider participating in one of the U.S. Department of Agriculture’s various environmental assistance programs, such as the Conservation Reserve Program (CRP) that pays a yearly rental payment in exchange for farmers removing environmentally sensitive land from agricultural production. There might be more options exclusive to your area.

Work with a tax expert and financial planner to help you track down all that could be out there for you.

Funnel your investing dollars into environmentally-conscious companies, but beware of the fine print

A new way of evaluating potential investments is taking money management by storm. It’s known as environmental, social and governance (ESG) investing, and experts say you can still make just as much through this form of SRI as you can with any other portfolio. You can invest in individual companies making ESG a priority; you can also utilize a mutual fund or exchange-traded fund with a pre-packaged group of securities.

“Our research shows that you don’t sacrifice any performance if you’re in a diversified fund that has different holdings in different asset classes,” says Michael Taylor, CFA, investment strategy analyst for the Wells Fargo Investment Institute who specializes in the topic.

The “Earth Day” approach would be focusing on the “E” aspect in ESG, Taylor says, though a company with pro-environmental policies is also bound to have some social or governance causes it’s focused on as well. “It’s fluid and not siloed,” he says.

If you’re an impact-minded investor, start by evaluating individual companies or index funds of which you’re interested in investing. At the Investment Institute, Taylor often references a five-point rating scale, with a one being assigned to a company that makes no or minimal consideration of ESG factors and a five being designated for an ESG leader or pioneer. But every institution does it differently, and you might benefit from working with a financial advisor who has a strong lay of the land.

But above all: Be cautious, and don’t trust what companies say at face value. Some companies might claim to be involved in a green initiative, though they allocate minimal cash toward the investment or act as if it isn’t a priority. Taylor calls it “greenwashing.”

Be sure to research the firms you’re invested in, understand what they’re focused on as a company and how they’re implementing those “green” priorities. Gather as much information as possible, and talk with a professional if you need more help.

“It becomes a fad,” he says. “Everyone wants to be sustainable. Does that mean they’re actually doing it? You really have to do your due diligence.”

Bottom line

Money talks, and that’s never been truer than with environmental causes. Americans concerned about the environment will find that there’s no financial step too small to make a difference. And if the impact is broad-based enough, experts say it can translate to real change.

“If we are all going to be voting together with our priorities, we can let our dollars speak for us,” Swartz says.

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