This One Thing Can Sink Your Financial Future

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…

Housing

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? 

Bailey Gato BW

MMC – Minimal Style

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Comments on this entry are closed.

  • @DivorcedonFIRE Jan 22, 2017, 10:12 am

    Having a smaller home benefitted me in a very unexpected way. My husband and I had been shopping around for a new (to us), much larger home, but didn’t take the leap. When we separated and divorced, I was able to keep my home on my salary alone. If we’d made the jump to a larger home, neither of us would have been able to afford to keep it, and the divorce would have uprooted our family even more. We all would have had to move, and the kids would have had to switch schools. Being able to maintain the house my kids have lived in their entire lives helped maintain a couple constants (living environment and schools) during a very turbulent time in all of our lives.

    • Mad Money Monster Jan 22, 2017, 10:43 am

      So sorry to hear about the divorce, but very happy to hear you and your children were able to maintain the family home. Things like this make living below your means worth it. You can’t predict unexpected events and it sounds like you made the right decision by NOT up-sizing. We also did not up-size over a year ago when we were seriously considering it. Thankfully, circumstances with the inspection of the newer/larger home revealed mold and we were able to take a step back and reevaluate our needs. Canceling that sales contract was one of the best feelings we ever experienced. We were stressed before we even settled over paying a big mortgage and utility bills. Thank goodness for small homes 🙂

      • @DivorcedonFIRE Jan 22, 2017, 10:45 am

        Amen! 🙂 So glad the mold was discovered before you made the purchase!

  • diyjahn Feb 23, 2016, 4:49 pm

    This is a great post and such awesome advice. My wife and I live in a home that we are able to get for free. The savings on housing costs (rent / mortgage payment, utilities, repairs, moving expenses, etc.) allow us to put over $2,000 extra toward our debt EVERY month. Even if we don’t love our living situation, it saves us so much money that we can’t responsibly move elsewhere until we have at least paid off a big chuck of our 200k in debt. It’s certainly a game-changer.

    Cassie | http://www.diyjahn.com

  • Mortimer Feb 23, 2016, 12:11 am

    Thanks for the shout out! And this is such great advice. Fixing your housing expenses at a point in time is a great hedge against inflation. The longer you stay, the more you win!

  • our next life Feb 13, 2016, 4:50 pm

    Totally with you guys on staying put! I’m sure our house counts as big to some, small to others. Everything is relative, of course! For us, it’s more space than we need, but because we bought at the bottom of the market, we think it could be more costly than we’d like to downsize… we’d be able to take some cash out and would save on utilities, but we’d having moving expenses, closing costs, realtor fees, higher property taxes, etc. So for now at least, we’re staying put!

  • Encore Voyage Feb 10, 2016, 4:18 pm

    Thanks for reaffirming our decision to stay put. At one point, we had purchased and paid for 20 acres, with the intent of building a new home. (He’s an architect.) Design completed, construction documents underway and we had an epiphany – “What in the heck are we thinking!!!” Did we really need to start over, bigger home, more land to worry about, and all the time that would be required. In the end, we sold it all! – Doing a little remodeling to make our modest home more “livable,” we’ve reevaluated what’s really important in life – and we’re having a blast as a result!

  • ouellettem Feb 10, 2016, 8:36 am

    Thanks for bringing the nightmares back. We relive this pain each month of each year but we love our new home; I think? For us the main purpose for moving was for a better school system. Where we were living the house was a starter home, around 880 sq ft and it was paid for. Moving to a bigger house did provide some added square footage that allowed us to host some holidays, birthday and such. Everything was cheaper with the barbie guest house but the cost of a private school was like college. We figured we would put that money into a house rather than a school. We moved to a community with a good school system and much better surroundings. In the end we could sell this house and move to a more affordable part of the country and just maybe try to break even on the total cost of ownership.

    • Mad Money Monster Feb 10, 2016, 11:57 am

      Haha, sorry about that. But again, the reasons you state are perfectly acceptable for trading up. We are currently living in a 1300 SF space with two adults, a wild 6yo, two big dogs, and two cats. It’s a little cramped. Mostly, we do fine. But there are moments that dreaming of more house gets the better of me. And, I also think it’s fine to have a large home if that’s what you want and value. I completely understand. Unfortunately, for us, we need to choose one or the other at the moment. Maybe in the future we’ll be able to comfortably afford a larger space while still meeting our other goals. Only time will tell 🙂

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