Financial Freedom in 2021! Take Action: Day 7
Housing is the top expense for most Americans, often costing upwards of 30% of our income, and it can be difficult to find ways to quickly reduce the cost of housing. However, according to Scott Trench’s book, Set for Life, significantly reducing housing costs will take you on a fast track to increasing your savings rate and reducing the amount of time it’ll take to reach financial independence.
The recommendations made in Set for Life and by many bloggers is to house hack, which refers to the strategy to own a multi-family home, live in one unit, and then rent out the additional unit(s) to reduce your own living costs. This can also be done in a single family home if there is a separate living space that can be rented out or a super cool tiny house parked in your backyard.
Are you able to do this? My family cannot. Once children enter the picture, this strategy can become a bit more complicated and maybe less desirable.
Maybe there other ways your home can provide you additional income. Check out this article on creative ways to Earn extra cash from your home, from renting a parking space to allowing a commercial to be filmed on your property.
Other ideas to save on your biggest expense:
- Make extra principal payments to pay off your loan early.
- Refinance (rates are still below 3%!) or negotiate a reduction in rent with your landlord using comps in the area.
- Shop around for reduced homeowners insurance (start with your current provider) and/or increase the deductible on your plan to get costs down.
- Learn how to DIY upgrades and repairs (You Tube has a video for everything!).
- Hire an accountant or research every potential tax credit and discount available to home owners in your state based on your home’s specific features and location.
- Consider moving to a smaller home, a less expensive area, or a nearby neighborhood with a lower tax rate.
In addition to shopping around every year for lower insurance rates and DIY-ing many home repairs (like building our own back porch staircase), my husband and I chose to do the final suggestion on the list above. Some of our friends and family advised against selling our *perfect* home that they assumed would be worth much more one day, but the future offers no guarantees. Plus, we were ready to make big moves toward our goals, so we listed it early in 2020 and sold well over asking.
Our kids did not have to switch schools or find new friends due to our move. We simply moved to a home with a little less land that actually cost the same amount as what we bought our previous home for. However, because of the equity the first house had built and the low interest rates we received when purchasing our new home, we came out significantly ahead financially. And we love our new home and neighborhood! Win-win.
A big move like this can seem overwhelming and even impossible, especially with kids, but I recently heard the mantra, “Just because it’s hard doesn’t mean it’s bad.” Maybe a big move is your way to get ahead quickly. Maybe house-hacking is possible. Maybe refinancing will give you a significant monthly savings amount. No matter what it is, it’s important to strategize how one of your biggest assets can produce more value to you now and later.
Today’s action step is to take at least one of the above steps toward reducing home expenses and talk with your partner/family about long-term goals regarding home ownership.