One of the largest expense categories for most people is the cost of housing. At the heart of your budget, you must pay for housing or everything else will fall apart. Unfortunately for most people it is difficult to lower the costs of housing. So what can we do?
Move Somewhere More Affordable
If you don’t like how much you pay to live somewhere, moving is the easiest way to fix it. If you are renting, then this should be a bit easier, but there is no shame in selling your home if you cannot afford it. One of my (distant) neighbors actually went through this; the family was residing in a multimillion dollar home spanning many acres and you can imagine what happens when you lose your job on that kind of mortgage.
For a closer to home example, my wife and I found homes for half the price as others only minutes down the road. Don’t ask me why; the real estate market is a fickle beast. It never hurts to look around and make sure you are not in a micro bubble.
If you are currently renting, consider other homes and apartments around your area. Also consider the costs you are paying for amenities that you either use or don’t use. For instance if you use an on-site gym, then moving to save a few bucks to a place without one just to get a gym membership elsewhere makes poor financial sense.
Also consider the costs of your commute in relation to your home. If moving to save a hundred bucks a month means another half hour drive each day, it is likely not worthwhile. I am a big fan of living close to where you work, within reason. I managed to cut my drive time down from nearly two hours a day to less than twenty minutes. Not only do I save on gas, repair bills, and insurance, I save a ridiculous amount of time I can use towards things I care about.
Get a Roommate
Even if your college days are behind you and you are finally out on your own, there is no shame in having roommates. Think about it, how much further ahead could you be if your rent or mortgage payment was suddenly cut in half? A few years, even just one year, with a roommate can push you so far ahead on the curve of your peers financially.
To take it to the extreme, what if you had multiple roommates? Obviously if you have a family I doubt they will appreciate this, but if you are still on your own then consider renting out all the spare rooms you have. I knew someone who decided to rent out each room of his three bed apartment and sleep on the couch. Where did that put him? About $18,000 ahead all for a year of sleeping on the couch. If you do not mind sharing your living space and potentially reliving college life, then a significant pay increase could be waiting for you.
Get a Bigger House
Bear with me, this goes against basically all financial advice. I assume if you are reading this then you are working towards saving money and building wealth. Well, one of the surest pathways to wealth is real estate.
Rather than looking for a lovely single family home in a cozy neighborhood, consider purchasing a duplex or quadplex and renting the other units.
As an example, I found a triplex near where I live going for $238,000. The average rent for a one bed apartment in the area is $900. If you qualify for a 3% down mortgage, your payment would be approximately $1,360 per month for this property. Living in one unit and renting the other two will net you $440 a month.
Obviously there are other costs to factor in and you may not always have tenants, but if you can handle the landlord life then having someone else pay your mortgage sure beats paying it yourself. There is also the added bonus of renting the third unit if you ever move. You can move out into your dream house and still have the triplex earning you $1,340 a month.
Short Term Rental
If you live in a particularly busy or touristy area, you can take advantage of overbooking in the area. If there is a major event going on nearby, you can list a room online for significantly more per night than you would earn as a long term rental. Depending on your area this can be up to $600 a night. Now this isn’t realistic for most areas, but even a hundred or two per night beats just about any month to month tenant. It is likely more work, but you get more bang for your buck.
If you are in an area with yearly (or monthly!) events, you can make quite a dent in your housing budget listing a room online, with the added bonus of less time someone is in your home.
If you happen to have a particularly nice home with desirable amenities, you could advertise yourself for corporate retreats. The same principles apply above, plus companies tend to be willing to pay a bit more than individuals. Any old single family home won’t cut it for this however, you need quite a desirable set up for this to be a consideration. Significant acreage or square footage comes to mind here, such as my neighbor I wrote about earlier.
Refinance Your Mortgage
Whether you have improved your credit dramatically or rates have dropped, refinancing to a lower interest rate can save you a ton of money over time. This is more effective if you do not intend to move anytime soon and still have many years left to pay your mortgage off.
The general rule of thumb is to only refinance if you can drop your rate at least one percent. I also would not refinance if you have less than five years left on your mortgage, mostly because it is silly to pay closing costs when you are just about done. That goes without saying, check your closing costs against how much interest you will save a month.
If you will pay $100 less a month in interest and closing costs are $5,000 then it will take 50 months to pay for itself. To put it another way, if you had invested that $5,000 with the same rate of return, you’d earn 24% a year. With the average expected stock market return at 10%, you’d be a fool not to take that.
Refinancing your mortgage also gives you the opportunity to pull cash out of your home if you have built any equity up. It is generally not recommended to do this without a very good reason, but if you have other debt that greatly exceeds the interest rate you can get on your mortgage (I’m looking at you, credit cards), then pay them off with your mortgage. If you are feeling particularly aggressive financially, you can take the money and invest it in either the stock market or even a small business you want to start but never had the funds.
Get Creative
The heart of the issue with housing is that the traditional route we are told to take tends to be a poor route financially. The “American Dream” of a white picket fence and 1.9 children is an outdated idea that relies on a different economy than the one we have today. There are still plenty of opportunities available to us, we just have to be willing to get creative.
There is nothing wrong with being the “weird” one. After all, the weird people tend to be the ones with money in the bank.
