“It is better to live across the street and gaze at the nicest house than to live in it”
The choice of where and how you live represents the largest single expense or the greatest proportion of your lifetime wealth. It seems that we are desperate to get into our own homes and we often buy a far nicer home than we can afford.
It’s not uncommon for young homeowners to fork out 60 or 70% of their total income to cover high mortgage payments on low equity home loans. With this much in outgoings it is impossible to save. It is actually very hard just to live!
A typical family pays more than double the cost of their house over the life of their home loan. We eagerly agree to buy a new home for $500,000 and the banks are equally eager to lend us the money knowing we will pay them back the $500,000 plus an additional $650,000 in interest payments.
I’ve often thought it would be good for consumers if retailers had to put a price sticker on a flat screen TV that said:
‘Cash price $2,087. Hire purchase price $7,860 after all costs’.
I think people would save bigger deposits and buy smaller homes if the price tag on their potential purchase read something like: ‘$500,000 + bank costs of $650,000 ($1,150,000) for small 3 bedroom bungalow’ instead of ‘buyer inquiry over $500,000 considered’.
Going back to basics a home is just a shelter. To survive humans need some form of shelter although in a benign climate it may be entirely possible to live freely in a meadow without any shelter.
Acquiring a large house, and with it a large mortgage, is a right of passage in our culture Our home is not just the place we live in. Its a status symbol and as status symbols go bigger is definitely better. For this reason choosing to live in a tent may sound to many homeowners like a ridiculous or childish fantasy not fit for the homeless. Consider though that as a short term measure nylon accommodation could allow you to save 2/3 of your income. In one year you would have stockpiled enough loot to drop a thermonuclear money bomb on your first home mortgage. If you bought the smallest home to meet your needs you may be debt free and retired from working 40 years ahead of the herd.
Who’s laughing about the year you spend in a tent now?
I’m not saying go live in a Tipi. What I am saying is that most people could save the full cost of a typical house after in three years if they got deadly serious about retiring dirty rich damn early. Why not make sacrifices for a couple of years now to avoid suffering through work you dislike until you are 70?
The first house that we bought was for income. We saved hard and bought a fixer upper. We did all of the improvement work ourselves and now we have this place rented out as a regular source of income. The rent covers all of the mortgage costs and returns a small profit that we reinvest to decimate the remaining debt.
Our second house is the cabin that we live in. It is very modest. Two small rooms. It was really hard to find a two room house. Most houses where we live are 4 or 5 bedroom standard, but we simply didn’t need the extra rooms and we weren’t prepared to pay an extra $100,000 per bedroom. Our two room place works for us. There are only three in the family and we don’t have a lot of stuff. We prefer to have a household (to live together in) instead of a warehouse (to store and horde stuff).
Being smaller its easier to heat, simpler to maintain and requires less life lost working to own the roof and walls. Our smaller space also offers a more intimate family life. Some of our neighbours have such vast family homes it’s almost as if they don’t like each other and need the separation.
The thing that we really love about our house is that it is in the heart of the city, but virtually off the grid. It is located deep in a mature forest reserve. The original plan for the city was to build a street to access our home, but that street never happened. Consequently our neighbours are large trees and a mossy Lorax. We got a free health plan with the house thanks to a 250 step (think stairs not strides) walk to our front gate. Goodbye gym membership.
We also have a sizable piece of land that has allowed us to plant fruit trees and a large vegetable garden. This supplements our grocery costs. In time it will reduce our food costs considerably.
By local standards our house is the smallest house in the street (that we are supposedly on, but don’t actually live anywhere near). Our mortgage is about 1/3 the size of other houses in the neighbourhood. Mostly because of the access issues, the small size of the house and our deposit. We bought it with a very good deposit and we will try to pay it off as quickly as we can. In writing this I estimated that if we had the standard 5% deposit and then only made the minimum payments over the 30 year life of the loan we’d gift the bank 109% in additional interest. This would have consumed about half of our monthly income for every month until age 67 when we would finally own this dwelling. No time for celebrating. We would not have been able to put aside anything for retirement. At 67 I’d be looking to bank up something to live 20+ years off before we were too infirm to work any longer. Moral – only buy with a good deposit!
We are happy in our cabin, but that doesn’t mean we don’t actively consider the options – and there are plenty! Our place was built in 1924 and needed work. We’ve completed structural and cosmetic works. If we resold it we could make a profit and so we are actively deciding do we dig in for the long haul…or further reduce our living costs (which means we build up our money bomb and can retire sooner).
Some of the options:
Paid: Can we be paid to live in someone else’s accommodation for free (hotel manager, travel writer, accommodation reviewer, house sitters)?
Free: If we can’t find a way to make money is there some way to live for free (free lease, handmade home, tent)?
Mortgage free: Could we build an affordable family home and be entirely mortgage free today (nano architecture, tiny house, prefab, modular)?
Cheaper: Are there any opportunities to share our house and cut costs (renters, ESOL students, live with extended family).
We will let you know once we decide on the next step.
To sum things up…Right sizing your home is the smartest financial decision you can make! A few years living in a smaller place is like putting your personal finances on Dianabol. The only person who won’t love it is your mortgage manager when you pull the pin two decades early! By saving more of your take home pay (we like to keep about 75% of ours) you can build up a big enough nest egg to retire early or have the financial freedom to do with your life whatever you like.
Love to hear your creative ways to drive down housing/renting costs or tales of how you became financially free. Drop us a line in the comments box at the bottom of the page.