Quick House Keeping Note: It’s a busy time in our home. I refer to these two weeks as the “summer hole.” (I need to come up with a better name.) It’s the time when our kids are out of school and camps haven’t started yet. We’re in year two, so at least we were prepared this summer. We scheduled a little vacation and some other activities. In other words, expect the writing to be a little limited until the 18th or so.
I suspect that most of my readers are at least familiar with the title of a book called, Your Money or Your Life. It is widely considered the best personal finance book. (I haven’t finished reading it, but so far it hasn’t met my extremely high expectations. That’s not to say it is poor in any way.)
One of the main ideas of that book is that you trade your life for money. By limiting consumerism, your money goes further, you can retire early (if you choose) and get your life back. That’s really the core of the FIRE (Financial Independent/Retire Early) movement.
I’m going to piggyback on that to share a concept that I like to call, Your Home or Your Life. For most people, their home is their largest expense. So, by proxy, keeping housing expenses low will save you money to get you to FIRE quicker. In 2007, I called it Get Rich by Thinking Small. (I miss the days when a 350-word article and a well-placed George Carlin joke would get 26 comments.)
Today, there’s a lot more focus on tiny houses or even living in trailer. I get excited when I watch a tiny house television show because it seems like everything is amazingly efficient. I’m not sure how practical living in a tiny house would be. Sometimes things that sound great don’t pan out in real life and this may be one of those things.
Last month I picked up a free magazine, New England Home Life. The closet on the cover caught my attention. It is bigger than most best bedrooms and seems to have very few clothes. It was so ridiculously not like any normal closet that I had to pick it up. Surprisingly, there was an article in there that was the exact opposite of the cover, Tiny Home Living, by Mary Hullett. I wish I could share it with you, but it isn’t available online from what I can tell.
The article does a good job of painting a picture. In Japan the average apartment is 250-300 square feet, while the Americans move to bigger and bigger houses. It then explains that the tiny house movement began due to environmental and financial concerns. That’s where it gets interesting with this quote:
“For most Americans 1/3 to 1/2 of their income is dedicated to the roof over their heads; this translates to 15 years of working over your lifetime.
I was just about to start to go into all the math behind that, when I realized that it really isn’t that complicated. I think we can presume that a typical working career is typically 45 years (age 22 to 67). A lot of things vary, but that’s exiting college until retirement, which gets extended a couple of years as people live longer. So 1/3rd of your income is 15 years of working. If you spend half of your money on your home, it’s 22 years.
For me, that drove home the true cost of a home. Of course, the alternative of not having a home isn’t a good plan. That’s where a tiny house comes into the picture. I’ve seen them starting at around $40,000. That’s the kind of mortgage that many people could pay off in less than 10 years. It’s like getting a decade (or more) of financial freedom.
I ran some numbers on how much of our income our own regular-size house is. Because my income varies a lot from year to year, it’s impossible to get an exact number. It is around 20% and it would be less if we had a typical 30-year mortgage instead of a 15-year one. Look like we are in good shape.
There’s one more thing that I can’t help but think about. We have 3 rental properties (condos) that mostly pay for themselves. Two are them are very similar as they are in the same complex. They should be paid off by the time our kids are 15 years old. There’s a very real option that they’ll have the choice of a free home. (Or we may decide to keep it to support ourselves.) It’s hard to imagine the financial challenges more than 10 years from now, but I think that having that home will be the kindling for their own FIRE.
We have an affiliate relationship with one or more of the companies linked in this article.
Heh heh, “summer hole” is pretty good. This is our kid’s last week of school. Next week, we’re heading to Iceland. We’ll travel a lot this summer so no camp this year. It should be fun.
As for housing, 30% of your income is a lot. Most people can’t save very much after that. Smaller homes are okay. We just need to be more efficient with our space.
I’ve always wanted to go to Iceland and I live in New England, so should be able to do it a lot easier than most people.
That reminds me that I should write more about using space efficiently. I save too much stuff and we aren’t efficient with our 1800 square feet. With a little bit of work, it would feel like we have a mansion.
Housing choices are complicated. I’m in my mid 50’s and we are in our third house. While we purchased “modestly” compared to income, the house still requires a mortgage, and the bigger the house the more stuff to fix. If I could write a letter to my 23 year old self I would say pick a better first house and stay there(in our case we should have bought one with a two car garage). Eventually kids leave(hopefully) and then you too much room.
Of course this assumes all other things are equal. I drive through the area around our first house and the neighborhood hasn’t been kept up very well, schools aren’t as nice, etc. So would I want that to have been my forever home? Hard to say.
Yep, housing can often be a “how you feel in your gut” decision. There are some people who say that you shouldn’t make a mistake of buying too much house too young and others who think you should build in some room for growth so that you don’t have to sell and buy again (losing money to commissions in the process).
It’s really hard to anticipate a home that will work for your situation as you go through life’s stages.
where i live, central florida, housing is often 50% of take home income. that is HOUSING, not housing + utilities + insurance.
sounds obscene?
it is a combination of low wages and high rent. the subsidized housing [i lived in rent restricted housing for many years after my divorce] is set at almost 50% of take home. a 2 bedroom, 2 bath apartment is $800/month, including a washer/dryer, not including cable/electric/gas/water. that averaged another 300/month. the income limitation? you could have income of up to 24G/year.
let’s finish the math. 2,000 month gross, after taxes, EVEN if ZERO Fed WH, is 1800/month.
rent + utilities are 1100. so you have 700 left for car insurance/gas/bus/food/health insurance/etc.
the non-subsidized housing averages 100-150 more per room [a 2 bedroom would be about 1000/month]
this is assuming you want to live in a neighborhood where you don’t have to sleep with a gun.
so for many, it is impossible to escape these basic facts and ever get ahead.
as for buying a house, given the instability of the job market for many people, you’d have to be crazy to do that before you are established. when your position is terminated, yes i said when, not if, you will likely have to relocate. and then what? do it again in 2 years?
as for tiny homes: don’t have kids, don’t have pets, don’t have hobbies, don’t do sports, and don’t live in a climate with extremes requiring hot and cold weather clothing. oh yeah, don’t do thanksgiving, don’t have friends over, you’ll have no where to seat them.
getting back to the original point of trading life for money: if you manage to get through life without an addiction problem, you’re good. because the biggest money burners are alcohol and drugs. i’m not even going into the debacle a shopping addiction will make of your life.
btw, jJapan’s suicide rate is the sixth highest in the world and the second worst among eight major industrialized nations and it has one of the lowest marriage rate of any modern nation. maybe part of it is the lack of breathing room.
In the Dallas area the average rent on a “decent” one bedroom apartment is just over $1,000, but the reality is that it’s more(before bills). Young people have a terrible time trying to make it on their own now days.
Home is being around people who can drive you absolutely crazy one moment and make you feel like a million dollars the next. It’s knowing that no matter how hard times get, someone is there for you.
Such an amazing post , i really appreciate you , you are nicely done everything about your life or your home , i must say you are expert :) of writing
Thank you for sharing