The Elephant in the Room: Housing
So far, I’ve complained about the excessive spending we do on cars, driving, gifts, cable TV, electricity.. all without even mentioning housing. Why?
Housing is the biggest expense for most people, and there are some retirement/frugality/simple living blogs out there that advise you to live in an absolutely minimal house or even an RV.
It is true that there are big savings to be had there – with the ongoing housing market party, if you live in a neighborhood with healthy real estate sales right now, you could probably pick up a foreclosed house from a bank somewhere else in your town for less than half-price. Or you could buy a used RV for $20k and cut your housing costs down by 90% for life.
But I wouldn’t do it, so I can’t tell you to do it. The Mr. Money Mustache way is not about living on the cheap. It’s about living the GOOD LIFE on the cheap. The fundamental lesson of this blog is that there is plenty of money to go around in this country, so you don’t have to eliminate your spending on everything to become financially independent. You just have to cut out your waste. And for the most part, buying yourself a home is not a waste.
I live in one of the nicer houses in my town’s nicest (to me) neighborhood*. I love the four bedrooms and four bathrooms and the nice renovations I’ve done throughout this place over the past five years. It’s not the cheapest place to live, but to me it’s the best value of living pleasure to the dollar I could create. A house to me is the home base of your spirit, and when you’re living a frugal and natural life, you spend a lot of time at home. As a result, when I compare the sunk cost of my housing to that of other people, I come out behind.
But by having a comfortable house, you can be happy and entertained at home without having to go out. You can have friends over and maybe even feel less of a need for vacations – enjoying Staycations instead. All of us in my family feel more confident and productive in a good house, so on an income basis, it might even be paying for itself.
The only caveat to all of this feel-good housing talk is to realize that it is still a luxury you are buying yourself. A house is not an asset (unless it is a cash-producing rental property), it’s an expense. The best you can statistically expect is for your house value to keep up with inflation: 2% per year or so. Any more than this is just luck, and it can go either direction as we’ve learned since 2005.
So before treating yourself to a house, I’d suggest you go about it the old-fashioned way: save up a 20% down payment, then make it a priority to pay the rest of the balance off much sooner than the 30-year period implied by modern mortgages. The idea of having a house mortgage-free might shock some youngsters who have been conditioned by marketing to think that debt is normal, but seriously – give it a try. The challenge of thinking about saving larger amounts of money – a $50,000 downpayment on a house – is exactly the type of exercise you need as a new MMM reader. If I could do it as a 24-year-old bachelor fresh off the boat after arriving in America, you can too!
On the other hand, if having an upscale house is less important to you, and you get more pleasure from doing a major trip to the mountains each weekend with your friends, then by all means you should outdo Mr. Money Mustache and live at half-price compared to me! When you live in a country with plenty to go around, you DO get to splurge on the things that are important to you. You just have to choose the splurging carefully and keep the total spending down to only 25-50% of what you earn, so you can get ahead and have the opportunity for more luxury in the future.
* Of course, this happens to be in Longmont, Colorado, not exactly a happening metropolis.. but for living a frugal life and having a great environment for a kid to grow up, it’s hard to beat.
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Mr. Money Mustache is a family man living in the United States who retired from work, relatively wealthy, at about age 30. After several years of retirement, he noticed that his still-working peers were envious of his lifestyle. They were making more money than he ever had, yet they were somehow still broke. So he decided to write this blog to educate the world on how it is done.
I find myself fascinated with the whole tiny house concept, although my house is about 800 SF (living area, it also has a full basement). I used to think that in order for it to live better, it had to be bigger but I now know what I have is plenty for one person. As I’ve observed the trend toward small and tiny, I’ve become convinced that how well a home lives has little to do with its size. Design is where it’s at. Sarah Susanka discusses this so well in her first book, The Not So Big House. Over time, I’ve evolved a plan – which started out with a fairly good sized addition but has since shrunk considerably – for remodeling my house in ways that will make it much more efficient. I now realize I don’t need to add on at all – I just have to move some walls and a couple windows and doors. Now to figure out how to prioritize and pay for it. Energy efficiency is part of the plan but since I have 80s era insulation already, I’m not sure how much it will save me.
I also think that bloated housing purchases, along with the whole “my house is an ATM” mindset is the major reason so many boomers will never be able to retire. All the money that should have gone into the 401K went into trophy homes instead. I’ve certainly made my share of financial mistakes but buying too much house was, thankfully, not among them. I will be able to retire – not as early as you, Mr. M3 but earlier than most.
What’s this? Do I detect a little fuzz on my upper lip? LOL!
I too am fascinated with the not so big house series! There is so much inefficient use of space in many homes — the idea of optimizing what you currently have is brilliant.
Our current house is 866 sq ft on each of three floors (basement, main, upper). I can easily imagine us being just fine without the basement, so it looks like our family of three could easily live in about 1700 square feet.
We used to live in a 500 sq ft house, which I loved. It was a very quaint brick house with great light on a beautiful lot. For just me, it would have been perfect. When our son was born, we did okay for 6 months, but with family visiting and our child starting to get mobile, things started to feel pretty tight. MMM did not like it much, as he’s a carpenter and just finding a spot for his tools was hard enough, much less actually being able to use them.
Great points though about the not so big house idea. I recommend getting this book out of the library for some great ideas about your own homes.
I had a totally different — though still moustacian — take on housing… I decided to buy a house in a manner similar to how cheap-ass-bastards buy a car: cash.
Sure, they say it can’t be done… and … there are admitted hurdles to doing it. But I am here to say: it’s doable. (Okay, I am financially at 83% of expected budget… but I’m pretty confident IT CAN BE DONE.)
The way of the Spork is probably not for everyone… but what I did was basically sell everything I had (including a mortgaged house) and buy what I could afford. And what I could afford had to be expandable to what I actually wanted. What we bought was land… out in the country… with a really nice tool shed on it. … and we moved into the tool shed. Yes, I said into the tool shed.
A good 5 years have gone by since that day. (I might add: these were actually a REALLY GOOD 5 years. As small and tight and unappealing as this place may be… I have honestly had a great time living there.)
Today a house stands in front of that tool shed… mostly, but not totally complete. We are expecting to have Thanksgiving dinner inside. It is by no means a cheap house. It is also (I think) not an extravagant house. We picked and chose and whittled things off. The planning an re-planning was sometimes painful… losing things we wanted, but trading them for a paid off house we would live in … possibly for the rest of our lives.
I could ramble on forever here… but it can be done. And it can be done without blowing your entire life’s savings.
I don’t think we could ever afford to buy a home in our downtown neighborhood. The housing prices here are nuts – approaching “crack shack or mansion” levels. I mean, we could get a giant mortgage like everyone else does, but I don’t want to be suffocated by house debt. People tell me we’re throwing our money away by renting, but our rent is cheap, so it’s the best way for now. But one day, I would love to have a back yard and a workshop and some actual storage space.
We dream about moving to the west coast (Vancouver/Victoria) but the housing prices there are even more stupid.
How did you end up in the US, Mr. Moneymustache? I can’t imagine leaving behind OHIP and moving a place where people think that public health care is “communist,” and people like Michele Bachmann roam the streets.
I find it funny how many people say they are debt free and proud of it(as they should be….if they really were) all except the mortgage….. which eats up 30-45% of their income. 30 to 40 yr mortgage? c’mon!!! My first house I put 45% down, paid it off in 9 years. and now rent it out for the equivalent of the 30 yr mortgage on my newer bigger house getting ready to start a family. I expect to pay this one off in 9 or 10 years as well. And no I don’t live in a cheap place. The average 3 bed single fam home in flagstaff is 11 times the median household income. when did society decide that maxing out a home debt was a good thing? and no, I don’t accept the tax deductible thingy. I would have to work really hard all year to spend enough tax deductible-wise to match the standard deduction, incuding the mortgage interest.
I know it’s an old post, but I wanted to comment anyway.
I’m a firm believer of paying down debt (mortgage included). Even if interest rates, are low, by paying above and beyond the minimum you are effectively forcing yourself to save money while restricting your disposeable income, enabling you to learn to live of less.
My story. In our country housing is expensive (5 x average household income), interest rates are high – we locked in at 7.5% for 5 years (15 year term) and that turned out to be a good deal. Yet my wife and I managed to pay it off within 5.5 years by making simple choices. Uping monthly repayments, making bulk repayments whenever we had accumulated $10k or more in savings, and being smart with expenses (especially with recuring mothly ones).
It takes dedication, but you don’t have to deprive yourself.We still went out with friends, travelled to europe, renovated the house, contributed to retirement savings and started a family (with the freedom of one of us not having to work – admitedly I’m a little jealpus of Mr MM, but honestly financial independance in my early 30s never occured to me).
With all that said after being truely debt free we found ourselves saving less as we had no real plans as for what to do with the spare income (other than buy a bigger home). Thanks to Mr MM we how have a goal which is getting us back onto the right path.
Cheers.
I am still gobsmacked that you also live in Longmont, MM family. Awesome.
My goal is eventually to live in a small small house, with an outbuilding for the Pro Musician to teach and practice out of. Or maybe a slightly bigger house with a lower level for same. But with barely any savings and a ton of student debt looming in the future…things look like they’ll have to wait some time.
I am re-reading this post through the “random article” button. The timing is perfect too, as I have been thinking alot about this subject lately. I agree with Kathy about the well-designed, not-so-big house. My house should be smaller than it is for me to be perfectly content. Right now I have a few extra rooms that are mostly unused. My biggest gripe is having to clean the extra space! Ditto for the yard…..love having it, but need a little less.
Working really hard to be 100% debt free in 13 months. Think of how much extra you would need in your retirement account if you have a mortgage to meet. Can’t wait until I own it outright. My Grandfather told my Dad “get your house paid for as you can always find enough work to buy food”.