How Our Home Is Helping Us Achieve Financial Success

One of the biggest factors in our ability to live below our means is the choices we’ve made when it comes to housing.  Here’s how living little has helped us pay off our student loans and other debt, save for retirement, build an emergency fund, and become self-employed, plus ways you can transform your home from a money pit into a financial asset.

When Ryan and I first met, he had just moved back to Kansas City from San Francisco.  Instead of renting an apartment in one of the new luxury complexes that scatter the suburbs, he leased a one-bedroom unit a mile from his work, built circa 1970.  While it might not have looked like much from the outside, this place was plush.  For a fraction of the price our trendy peers were paying, his apartment was outfitted with all of the appliances and fixtures you would need, plus it had a working fireplace.  We still talk about how much we miss that fireplace!  Saving big bucks on his rent meant that he could buy me this, without going into debt:

Once his lease ended, Ryan moved into the house I bought before we met.  After the stock market crashed in 2008 and the housing bubble burst in many parts of the U.S., the government offered significant credits for first time home-buyers.  I took advantage of the 2009 legislation that entitled new buyers a tax credit totaling 10% of the purchase price of the home or a maximum credit of $8,000.

I’d only been out of school and at my job for two years at that point, and while it was a stretch, I saw opportunity.  I was approved for a staggering $225,000 at 5.25% on a 30-year loan, which I remember people at the time telling me that rate was a steal!  After setting my spending cap well below the amount Wells Fargo told me I could afford, I started house-hunting, targeting a popular suburb in an excellent school district that had charm, character, and most importantly, great resale value.

At a little over 900 square feet of living space, my 1.5 story Cape Cod with three bedrooms and one bath, an unfinished basement and a single-car garage was more than enough space for just me.  In fact, before Ryan moved in, the upstairs bedroom was completely empty.  Even though he left his old futon and hand-me-down mattress in the dumpster at his old apartment complex, we were still a little apprehensive about merging our stuff and the prospect of sharing a single, tiny bathroom.

Turns out, sharing a bathroom was no. big. deal.  In reality, some of our best conversations happen in the morning, while one of us is in the shower and the other one at the vanity.  And while it may be small by today’s standards, when it was new, our post-war tract house built in 1951 likely housed a growing family with children, all of whom shared that single bathroom.

Going from paying for two homes to one, helped us free up money in our budget for other goals.  Since moving in together, we’ve had raises and job changes, refinanced into a 15 year mortgage at a much lower rate, rid ourselves of private mortgage insurance (PMI) and, after paying off our student loans in 2016, are now sending extra money to principal every month.

Living little also means lower utilities.  Even in an area where the climate has us constantly running either the furnace or central air, we pay less than $100 a month for natural gas and electricity, combined.  When you add up our utilities, insurance, mortgage and taxes, we’re spending about 15% of our take home pay on housing expenses.

Here are ways you can cut costs and save money on living expenses:

  • Don’t rent or buy more than you can afford. There’s nothing wrong with a big, stately new home or a loft with urban charm, if that’s your financial priority.  But you can’t have it all.  Build your budget around what matters most to you.  If that’s your home, you’ll need to find cuts in other areas to keep your budget balanced and healthy.
  • Find a roommate. Move back in with mom and dad.  Rent a room, either on Airbnb or by connecting with your local college or medical school to see if they have students in need of short term housing during their practicums, rotations or summer semesters.
  • Regularly look for ways to pay less. Compare renter’s or homeowner’s insurance rates regularly.  We switched and saved an extra $500 by changing companies and paying in full for the year.  If you have the Internet or cable, do the same thing.  Call and see if they’d be willing to lower your cost to keep you as a customer.  Trim your utility costs with a programmable thermostat, by dressing for the season instead of running the furnace or AC, insulating windows, outlets and attics, and by unplugging electronics while not in use.
  • Watch for hidden costs. Our homeowner’s association fees are a whopping $15 a year.  Sure, a community pool, fully-equipped gym, lawn and landscaping services, and other amenities may seem attractive, but you’re paying an inflated price for them.  Consider an apartment complex or a neighborhood without these up-charges.
  • Check on interest rates. Refinancing comes at a cost, both monetary and time, but it could be worth it.  When we refinanced, it not only lowered our interest rate, but the updated appraisal showed that the home had increased in value by nearly 15% in five years.  This increased value meant we were that much closer to having paid down the 20% required to get rid of PMI.
  • Consider location. While we live in a relatively low cost of living city, housing costs decrease the further you live from a major metropolitan area.  While I’m geographically tied to my job, I often think about the benefits of moving back to my hometown, where you can buy a house the same price as a new SUV.  With the rise of telecommuting, if you can find a job that pays big city wages, small town living can offer a financial edge over your downtown-dwelling or suburban HOA paying peers.

While timing has helped us, we’ve also been strategic in the choices we’ve made to rent, buy and now, stay in our current home.  Where you live is one of the biggest financial commitments you will make.  Avoid becoming house-rich and cash-poor by making smart moves.  Literally.

3 comments

  1. Amy – this is such an amazing juxtaposition to my recent post on our home. Living little and staying in your first house so long sounds like it has made all the difference to you two. I wish we had followed in your footsteps! We bought well within our means but didn’t go as small as we easily could have (we lived very happily in a rental house half the size) and didn’t buy in a location we would want to stay long term. While I still wouldn’t necessarily call your house an investment, it really seems like it was a great tool for helping you towards financial independence. I hope our next housing choice looks more like yours!

    Thanks for a great read 🙂

  2. Great post! We live like you two in many ways. Our housing costs are around 17% of our income right now, and that’s renting an apartment in a lava-hot Denver market.. Once we finish paying off our $107k in student loan, car, and credit card debt, we plan to purchase a home well below what we could afford. Minimizing our lifestyle and fixed expenses is allowing us to put over 50% of our incomes toward getting out of debt and will help us to become financially free and retire young. There’s a lot more to enjoying life than driving a fancy car or giant house, thanks for sharing!

    Ryan

    1. Amen to that, Ryan! And home-ownership definitely isn’t for everyone, especially in HCOL areas where fixer-upper starter homes start at $500,000. Sometimes renting just makes more sense, from both economic and lifestyle standpoints. And I really did take a risk buying when I did. I didn’t have the savings then should anything major have happened – like a needing a new roof or HVAC system. Fortunately, it all worked out in my/our favor and we’re now reaping the rewards of equity! Best of luck to you as you continue to pay off your debts – you’ll be done before you know it!

Leave a Reply

Your email address will not be published. Required fields are marked *