Don’t Be House Poor: How to Tame Housing Expenses

This is what a normally beautiful resort style pool area looks like when it floods during hurricane season. But one advantage of renting is that I didn’t have to lift a finger; the mess was cleaned up automatically.

Happy Monday, ya’ll! Here is the latest post in my Annual Expenses series. If you didn’t see the introduction post that summarizes all of my expenses, you can check it out here. I’ve been going into detail on one category each Monday. Over 2017 and 2018, I spent an average of $12,600 per year on my housing expenses. Please note that this only includes rent – not utilities, maintenance (I pay zero since I rent), or any other associated expenses. And that is actually trending upwards. This is the largest annual expense for most people and I’ve made tons of financial progress over the years by being very conservative with it. I still am in some ways, but I’ve definitely moved a significant distance along the cost/quality spectrum in 2018 and 2019.

What does that look like? For the last two years, I’ve lived in what I’d call medium-high end luxury apartment complexes. But I’ve also had one bedroom apartments, as much to maintain the more minimalist lifestyle I’ve learned I prefer as it is to save money. It’s hard to buy too much crap you don’t need when you only have 700 square feet to put it in. So I avoid clutter but also get to enjoy premium features in my unit, beautiful landscaping, great amenities, and a safe, quiet location. But even in the relatively reasonable Houston market, I’m spending more than I was in most of 2017 in the Milwaukee suburbs, which skewed the average down.

This year, I’ll have spent over $15k when all is said and done. I’ve allowed this form of lifestyle inflation to happen because I genuinely enjoy where I’m living and because it is still at an extremely manageable level relative to my total income. The conventional wisdom is to spend a maximum of 30% of your gross income on rent. My preference is no more than 10%, and grudgingly 15% if you’re paying a mortgage instead of renting (more on that later). I acknowledge this would be much more difficult with an income at or below the average range. But there are ways to do it, and without compromising on essentials like safety. And that is why I said I believe this expense can be reasonably kept to $6-10k.

How? For starters, by viewing things from a more traditional perspective. As individuals in today’s world, we are more isolated than at any previous time in the short history of our species. Only a few generations ago, someone living alone as I do was not only fairly rare, but seen as pretty unfortunate and even embarrassing. I think humanity has lost a lot in the process of abandoning our collectivist roots. And I say that as a man you can probably correctly guess is a pretty strong fiscal conservative. Long story short, live with someone. It requires careful relationship management, particularly if you choose to live with a romantic partner, but it can be done. I believe there are likely psychological advantages, even for someone like me who doesn’t need to do things that way for financial reasons. And with two (or more) people kicking in, it’s pretty easy to keep your annual rent expense below $10k in all but the most ridiculous markets, like New York City or San Francisco.

From there, follow the same process I always talk about. Think about what your needs truly are. If you don’t have a fancy car, you probably don’t need to pay more for a place with a garage. If you aren’t going to use a fancy resort style pool area, a gym, a spa, etc, very often, don’t rent somewhere where you’re paying for those things. If you want to be a hardcore personal finance warrior like the legendary MMM, consider paying more to be close enough to work to walk, bike, etc, and see if you can cut car ownership, the second largest expense for most people, out of your life entirely for a year or two. If you don’t care about hardwood floors and granite countertops, well, I think you get the idea.

What if you own your home instead of renting? Theoretically, it should be cheaper then, since with renting you’re paying for someone else to do all the maintenance as well as to have the option to leave on short notice. But in the reality of today’s hyper-inflated housing market, that’s often not the case. So my first advice in this area is not to buy something overpriced. Mark my words, eventually, even the mighty US housing market is going to get a dose of painful reality. Those who have been patient will be the beneficiaries when it finally happens. However, there is an argument for building equity (just don’t overestimate this factor or try to have any financial discussion whatsoever with your average real estate agent, who is desperate enough to say anything and knows/cares very little about economics or your financial well being), having a more permanent situation, fewer neighbors in close proximity, etc. So to allow for that value, which is certainly real in some cases, I would sign off on paying up to 15% of your income on a mortgage – preferably with a twenty year max term so you aren’t paying a fortune in interest or buying way more than you can truly afford. If you can’t do that, buy a less expensive house, rent another year, or look into renting out a room in the house. There are always options; never forget that.

Keeping your housing expenses well in check really only requires thinking a little bit outside of the box. Just because other people do things a certain way, that doesn’t mean you have to follow suit. There are way, way too many people out there who are “house poor” – in other words, their finances are unnecessarily constrained because they are paying way too much for their residence. P.S. If you want to live in Silicon Valley, ask yourself if you can get a job there that will pay you several times what a job in a reasonable housing market will. Keep in mind that the higher the income, the greater the diminishing return effect due to higher marginal tax rates. And spoiler alert, unless you’re a CEO or something pretty close to that, and you couldn’t get that kind of job anywhere else, the answer is going to be no.

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