When you go to Las Vegas, do you pay for a nice luxurious suite or a minimalistic room with a bed & a sink? I opt for the latter {because we’re out partying 18 hours of the day ;)}. And it is this type of mentality we are going to use today in looking at options for finding a place to live. We will be discussing the first half of Day 1, up to ‘location’ and complete the rest later in the week.
If you are new here, we are exploring our options for reaching Financial Independence with the Early Extreme Retirement {21} Day Makeover.
I will be using my living situation to reference in this analysis. Thus, we are a family of 4 {pa, ma, & the two inklings}. Please map out your personal living situation to see what scenerios may work for you.
The Basic Necessity
Even thought the song does not have relation to money, the beginning lyrics to Ludacris come to mind, “How low can you go? how can you go? how low can go?”
Jacob recommends $200-$300/month/person for living arrangements. I can see why if you consider the true cost of your living arrangement.
To strive for Financial Independence (FI) at the upper limit of $300 for living arrangements you be required to save:
$300/month = $3600/year in living expenses. This needs $3600/0.04 = $90000.
Family Scenerio
We live in Southern California {cha-ching}, specifically in the Inland Empire. What does that mean? The family is located in the outskirts from major cities like Los Angeles and Orange County. Decreased housing costs.
- We pay $1100 month for a 4 bedroom 1277 sq. foot home
- We are bound by a mortgage
- The husband and I are responsible for our children’s living arrangements
- We have a boy and a girl {aka: need their own rooms due to gender}
We are living pretty low in costs on the So. Cal totem pole. Pretty dang good deal for us! That is $275/person/month – (but the children are not paying their rent – YET ;)). So, $500/adult/month.
We are required to save (adult/month) :
$500/month = $6000/year in living expenses. This needs $6000/0.04 = $150,000.
If you share your expenses, then double the numbers. With these figures, it may explain why some say to financially prepare for children before having them.
Play Out Different Scenerios
Our mortgage costs are relatively equal, if not below that of an apartment rental in southern California (if you rent an apartment or house, what is your rent?). I was browsing apartment/housing costs on Craigslist and found rent to be $500 higher on the low end of the spectrum. Renting room(s) from someone is out of the question.
Potential Extreme options:
- Get a bigger house and live with another family or take on roommates only if the cost of living for us equates to less than $500/adult/month.
- Sell the house and rent a mobile home (I did locate one, but it was still the same price in rent that we pay for mortgage. The lot price alone is $600 per month)
- Live with our parents (maybe if we were a younger couple)
- Move to a different state with a lower rate of living (I have legal obligations that keep me in this area until one of my kids turns 18 – maybe in a couple years we can look at this suggestion)
- Have any suggestions?
Your exercise today, figure out how much you need to save for housing to meet the Financially Independent goal in the living arrangement category. Can you reduce your rent/mortgage rates to meet a $300/person/month? And think about different living arrangement options. Brain storm those crazy ideas. Write them all out. If you’d like to share, please comment below or try out the forum in the works (the latter offers more privacy). I have a category labeled ‘Early Retirement Extreme {21} Day Makeover’.
Hi Christine, We have always purchased a less expensive home than we could afford (in a good neighborhood). Also, left San Diego due primarily to cost of living issues. So much less stress when living costs are reasonable! Thought provoking article. Barb
I love walking along La Jolla! But definitely, San Diego is an expensive place to live. My husband played it smart with buying only as much house as he needed. All the while, his friends bought the bigger homes. Now they face financial stress because the balloon payments started or many have walked away. Yes, many.
I’m not exactly following his math … he doesn’t seem to account for taxes or inflation. Especially with what they are planning to do to the capital gains rate next year…
Suggestion: Buy the mobile home. They’re about 10-20k (used).
@The Lost Goat – The 4% comes from the 4% safe withdrawal rule.
This is why I love blogging scenarios, because you get a wider spectrum of feedback. I was too busy thinking about renting, all the while buying a mobile home makes sense.
In our case, if we sold the home at the appraisal price, we would make just enough to just break even on the house and buy that mobile home. Ya, that would be about it. So, no money to put in the early retirement account, but our rent would be reduced to $600/month. 🙂
Right, we live in a 3 bed house {2 adults, 1 age 20 child and 1 age 16 child}
20 years old pays board as he is working so, our mortgage is £542/$789; less than $200 per person {4} $263 if divided by three so within the limit {$200-$300}
I’ve looked and our mortgage is the same as rental for 3 bed house in our area so no saving to be made there; problem I see is the mortgage rate, currently 0.99%, when this rises, as I’m sure it will over the next few months we will be moving above Jacobs recommended amount.
As we’re putting the house up for sale in >600 days {I’m counting} it’s not worth us changing our living arrangements at the moment; food for thought though when we do 🙂
Love your mortgage and interest payments!
Less than >600 days? That is not to far. Bet you are getting rather excited. When looking at properties in Portugal, are you able to find good prices for a place? You are trying to if you can minimize your living costs significantly in Portugal, yes? If you have not read, you may enjoy Simple in France’s post about Patricia’s very minimal lifestyle.
I can’t take my mortgage payment as a very good indication of what my true living costs would be since I’ve increased the payments so many times I’ve lost track of how much it originally was. I think I’m paying somewhere around $250/month in interest on a $1400/month mortgage payment. Throw in property tax and it’s probably somewhere under $400/month.
I really disagree that a house can’t be an investment since I’ve made money from every one that I’ve owned and our housing market here where I live would have to severely implode to not make money off this one. But I’m a big believer in putting sweat equity into fixing up a house as a means to retire earlier too.
When I sell this house, I’ll buy another for cash to fix up worth probably around $100-150k in a more rural /recreational area unless I saw something that could be transformed for a higher price so the opportunity cost of that would be around $4-6k/year. That’s well worth the price of working for a few weeks a year to pay for it if the stock market was flat. Still higher than the threshold, but not severely considering the fact that it fits into my retirement budget. Where I live in retirement is huge to me since I’ll be spending considerably more time at home. And I want to be able to have animals. 🙂
But, why not look at home ownership in part as an investment? Since you can sell the house (and chances are you will get back at least what you pay) why doesn’t that get counted in to the calculation in terms of equity?
I own my house outright now (bought in an iffy neighborhood for a low price and had a 15 year mortgage which I paid off 4 years early) so my only housing expenses are taxes, insurance, and whatever I need to put back into repairs. Right now that comes to about $200/month, with two adults in the house, that means about $100/month per person and is likely not to increase by too much each year because we have a cap on how much personal property can o up. So, I guess I need to save $30,000? Or, do I not count the taxes and insurance?
My city has high property taxes but I need to live in town because I don’t have a car so I think it’s a fair trade off. I don’t have children so I didn’t have to take schools into account when I bought my house.
But, even better, if I decide to move, I’ll be able to sell for easily twice what I paid (including interest) and would be able to buy my next living arrangement outright as well.
I gotta tell ya, you’re doing great on the mortgage! I’m renting a dumpy little house in a suburb of Los Angeles for $1,800 with two people living in it. That equates to 3 times the $300/person ratio! I’d love to convince my husband to move to a less expensive area, but he’s sold on SoCal. I’ve been coming up with interesting living ideas, such as building a container-style house, but until that happens, we’re going to be exceeding our living expenses. 🙁
If we had a 30 year mortgage, our house would be 300 x number of people living in the house. (1500 dollars)
When we bought this house, it was our third home, and we did quite well on selling our previous houses and ‘traded up’ every time. Our house has decreased in value for sure, but we are nowhere near underwater.
I think I view a home a bit differently though than how many frugal people do. Although it may not be a financial ‘investment’ in that there are a lot of costs in maintaining a home, not to mention sometimes you buy at the top of the market. However, it is an investment in happiness. I wanted my kids to have some room to have friends over and a yard to play in. For us, a mobile home just wouldn’t suit our needs. Sure it is a lot cheaper, but I wanted to enjoy our journey to retirement. (Not judging, housing is much more affordable in Michigan than southern California.)
So, when we bought our house, we wanted to make it as much of an ‘investment’ as possible. Which meant I wanted a home that would have good resale value. Good schools, safe neighborhood, great yard. So retirement may be put off a little longer than it would have been, but that is ok.
I was wondering if someone was going to bring that up – the value of your kids living situation. As a parent, we want to give them optimal circumstances. Myself included. I see it as an investment, not so much the house, but your children’s well-being.
As parents, the ‘extreme’ may be lowered essentially and to try our best to ‘retire early’.
I also see that if I can ERE (Extreme Retirement Early) than I can give myself the time to build up for something bigger or at least, on my own terms. Now why I didn’t think of doing ERE when my children were younger and not teens… would have been a heck of a lot easier!
I dont want to get old to start thinking about this kind of stuff! This seems crazy to think about how much money kids can actually cost!
Wow. Your mortage is actually pretty good!
We’re in Long Beach, down by the water, and pay $695 in rent for our studio apartment, which is $347.5 per person. Apartments in our area with the same square footage run $895-$1695 per month. CRAZY. I got in before the boom and my landlord said that as long as I stayed, she wouldn’t increase the rent. In fact, she included utilities ($12-25 per month) in the rent after my first year there.
Although I love our little place, I am a create of the Midwest. I miss a house and a yard. I reeeeeaaaallllllly want both one day, but have no delusions about being able to afford anything in Long Beach. Le sigh. I guess we’ll eventually have to trade in our great weather for a lower cost. Bummah!
Christine, a thoughtful and yet provoking article. My husband and myself went actually through a similar excerise (not only a budgetary exercise), but also looking at our cost of living. We are a family with 2 small Children (4 and 2- so no rent yet) and 2 adults paying $900/month for our house. So at $450/adult we are a bit over it, but we no other debt (downgraded our cars and paid cash) and decided to invest in lifestyle and location (close to schools).
My girlfriend and I are considering souther California someday, would you suggest it even with the high living costs?
I don’t understand why homeownership (if done properly is not a good thing). For example, where I live, I could not rent anything (even a small dinky, crapy 2 bedroom apartment in a bad neighborhood) for what I pay in Mortgage, Property Taxes, Homeowner’s Insurance and upkeep. Mortgage at 6% is $350/month (we pay $400-$450/month), property taxes cost us $275/month, Homeowners Ins. $69/month (because we have a replacement cost policy on a 1920’s home) upkeep $100/month, Total: $844/month or $424/adult (which is higher than desired, but we do have two children). In 5 years we will own our home outright and have a monthly upkeep of $444 or $222/adult (well within the range). Please not our garage and water is included in our taxes. If I were renting a place I would face the constant increase in rental costs and the cheapest, junkiest 2 bedroom apartment (we have 2 kids) would be $600-$750/month starting. So for $196-$96 a month for the next 5 years I should rent an apartment. The savings after I pay of my mortgage more than justify the small extra cost. If you buy a home you can afford, and can do the repairs and upkeep yourself (we can with some from friends and family) then homeownership is not the reason people are not financially independant, greed for a home that is too big and out of their price range is.
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