Keep Your Housing Costs Low To Get Ahead

One of life’s basic needs is shelter. Everyone needs a roof over their head and a secure place to store their possessions when they leave. Without this fundamental building block, life is a constant battle. So no matter what your current living situation is, be grateful you have a roof over your head as many do not. In this article, we will look into ways you can keep your living expenses down so you can focus on saving more money and having fun with your hard earned dollars.

“Experts” say you should spend no more than 30% of your income on housing costs. This is a good starting point, but there is so much more to the story. In a recent article in The Denver Post, they stated, “One in every four Colorado renters is spending more than 50 percent of their income on housing”. Ouch, that is the reality of what is happening in many major markets across the country. Rents are moving up fast, but wages are lagging.

Ideally, you want to keep your housing costs below the 30% mark. This mark is used by a lot of real estate professionals to help people figure out how much house they can afford. Realize that the people setting these guidelines could have interests that align with you spending as much as possible for them to make money. In reality, every dollar you spend on housing is an after tax hard earned dollar that could be used to invest or for fun.

Ideas to Save If Renting

Renting is not as bad of an idea as the media makes it out to be for the “damn millennial” crowd. It is true that the money you use for rent is gone once it is spent. What you get in return is a place to live and the flexibility to pick up and move after your lease is up. This allows you to stay flexible for job offers while you are progressing in your career or just live in new neighborhoods and cities. With renting you usually are willing to be flexible as well. This means you are willing to live in a place that you might not be willing to buy. This is a big advantage over home buyers because you can seek out a place that you can rent for cheap and not stress too much if a place has a layout you don’t want forever. Below is a list of ways you can save money by renting.

  • Live with roommates
  • Rent a studio
  • Live in a less desirable neighborhood
  • Live as close as possible to where you will be working allowing you to live with no vehicle.
  • Rent a room from a friend
  • Rent from your “roommates” aka live with your parents

Now although renting is not a bad idea I would be lying if I said that I think in the long term it is the best strategy. This is not to be confused with me thinking your home is a great investment. In general, your personal residence will only cost you money when purchasing in the traditional way. Of course, no one would buy if the story stopped there. Owning a modest personal residence in my opinion has two major advantages.

First, it is a great hedge against inflation, real estate always has been. Most young people move to a city because they are in need of work experience and many career paths do not offer the same kind of growth in rural towns. This big influx is what is making some of the best cities to work in also the most desirable to live for young people. As more companies realize they have access to a young “relatively cheap” educated workforce they will make the business decision to move more jobs in, this then attracts new employees, and the cycle grows on itself. This then makes housing more competitive and pushes rents up. Meanwhile, if you had purchased a home with a fixed-rate mortgage you not only get certain homeowner advantages but your payment stays the same. Over time your mortgage seems tiny compared to other costs in life because you locked in a price for up to 30 years!

Second, is that one day if you don’t let lifestyle inflation creep in on you, you wake up and don’t have any more mortgage payments! You now have a place for your family to live forever as long as you pay your property taxes and insurance. This is big because not only do rents tend to keep up with inflation over time getting higher and higher they also never go away! This means you will have to have investments to cover your rent when you are older or keep working forever, ouch.

Because of these two things, I think if you know you are going to be in a stable position and in the same location for 5+ years, I would buy. Let’s look at ways to “House Hack” if you decide to buy a place.

Ideas To Save If You Own A Home

  • Rent a room to friends (provide a place for a friend what can be better, both parties win)
  • Buy a home with income potential (buy a duplex and live in one side while renting out the other.)
  • Air BnB your place (other young people are tech-savvy and open to crashing in a spare bedroom or renting out your whole place while you aren’t there.)

No matter what route you take renting vs. owning try to make smart decisions on how you can save. By keeping your housing costs low now, you can invest and choose to live wherever you want down the road. Make small decisions to save money on rent and then put those dollars to work.

What Are Your Thoughts?

  • Do you currently rent or own?
  • What are other ways do you save money on housing?
  • What is the lowest price you have paid a month on rent/mortgage?

Spread The Wealth!

8 Comments on “Keep Your Housing Costs Low To Get Ahead”

  1. Interesting Article. Thanks for sharing your thoughts on Real Estate.

    I currently rent in Denver and prices continue to climb, making me feel queasy each month when I pay rent. You spoke about ideas to save money – would you be willing to talk to my parents and see if I can move into their basement?

    1. I would be happy to talk with your parents! Are you ready to move back in? Nothing better then some home cooking and spending money on something more fun then a -100% return on rent.

    1. Great point, I think that is the case in many major metropolitan areas right now. Do you rent or own a place as of now? I have a feeling many are feeling the pressure to buy so they don’t get priced out.

  2. Nice post – interesting thoughts on saving for renting and owning. I also think renting gets a bad reputation for millennials (being both a renter and millennial myself).

    I do think real estate is a great investment. We currently invest the majority of our net worth in equities, but 22% of that is in the Vanguard REIT index fund. While not physical real estate, the diversification and liquidity is something very appealing to my wife and me at this time.

    We currently rent and intend to do so for the next few years until we decide on a location where we see ourselves staying for an extended period of time. From an investment perspective, I would like to look further at direct real estate ownership after owning our primary residence. In the interim, I’m quite content owning passively via a REIT.

    As far as current costs, rent does continue to rise (but we negotiated a 0% increase for the next 15 months when our management company wanted 3% for 12 months). It’s good for the REITs though.

    This also gave me an idea for a future post. Thanks again.

    1. I think your plan sounds great. Most people end up getting over emotional when it comes to their personal residence and tend to make the numbers look a lot better in their heads then they are in reality. For the majority of people it is also their first dose of what it is like to invest using leverage so if they buy in a market that appreciates they start to feel like pro investors. I think you are smart in thinking through where you want to be so much tends to change over time.

      As you rent I also believe if you are savvy you can negotiate just like you did in your example if you are a great tenant to get a better then market rate. I enjoyed your site and will be checking back in for future posts, thanks for stopping by.