I’m sure everyone here has heard of Robert Kiyosaki. If not, he’s a entreprenurial guru who has written lots of books that explain the habits of the wealthy. He’s best known for his book, Rich Dad, Poor Dad. He explains how he learned as a young boy that in times of crises, assets feed you while liabilities eat you. Regardless of your income, the one thing that has the greatest influence on how quickly you reach financial freedom is your housing. Not only where you live, but how you live. Surprise! It’s another real estate post. Bear with me, I promise to take a hiatus from this topic after these few short paragraphs…
Most of us in the PF community are pretty cognizant regarding how each of our choices affects our monthly bottom line. Even small choices are scrutinized; this is evident when we clip coupons and pack our lunches. But, if there is one thing I have learned during my life, it’s that where you live has, by far, the biggest impact on your financial well-being. Your choice of abode will either save you or sink you.
Where means both the physical location of your home (city or ‘burbs) AND the size/type of housing (house, apartment, van, etc.) in which you reside. Oftentimes we are influenced by our peers to purchase more home than we actually need. If we happen to purchase more home than we need, you better believe reaching early retirement is going to feel like a pipe dream.
The True Cost Of Trading Up
The cost of trading up isn’t just the sticker price. Inevitably, you will pay a lot more for almost everything in a larger, flashier home. Consider the entirety of these additional expenses before swapping out your current pad…
Sticker Price = Out-of-pocket cash or increased monthly mortgage payments
Transaction Costs = No matter how you slice it, this will cost thousands
Increased Taxes = Yep, good luck finding a bigger house with smaller taxes
Increased Maintenance = More space means more maintenance
Increased Heating and Cooling Costs = Surprise! More space also means higher HVAC costs
Moving Costs = Most people forget this one.
Savings From Staying Put
If you’re able to choose wisely from the beginning, or stay put in a smaller than average space, you’re likely to reap huge rewards much sooner than most people.
Take note of the above expenses you will not endure month after month if you choose to stay put. Now, imagine taking the extra cash you would need to outlay for that bigger pad and invest it for your future. I dare you to use some online, wealth-building calcuators!
Hey, don’t get me wrong, there is nothing wrong with loving and living in big homes. It all comes down to what you truly value. For us, we are unable (right now) to afford a large home AND save gobs of money for early retirement. For us, it’s one or the other. We’re choosing to value financial independence over more square footage. Interestingly, we’re enjoying our small home, too. Time will tell if we make the decision to trade up after reaching our financial goals. Life is a journey!
So…got extra cash and considering that nicer house? Read this post on Mortimer’s Money Machines about doing nothing. Want small house motivation? Check out Two Cup House. Thinking of leaving it all behind to travel the country in a van? The guys over at The Resume Gap can give you some pointers!
Thoughts? Do you value large homes, small homes, or minivans? Is the cost of a large home worth the expense? Is the cost of a small home worth the expense?
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