Tuesday, February 24, 2015

Saving Money on Housing Costs

Related Article:  Housing Costs


Cost of Housing 

Depending on who you ask, the average American household housing expenditure is roughly one third of their annual income. Of that, about two thirds go to mortgage, rent, tax or insurance.  The rest goes to utilities, maintenance and furnishings.

For example: 
Household income:  $50,000
Housing:  $ 16,666

Mortgage/rent/tax/insurance:  $11,110
Utilities/maintenance/furnishings:  $5,550

Of course your situation is likely to be dramatically different if you're a college student living in a rented room or a senior citizen living in an assisted care or nursing home situation. We will deal with such situations in other posts.

For most of us, it is our largest expense so it pays to pay attention to it.  Let us take a look at how we can control our housing cost one element at a time.

Remember Financial Freedom = Savings = Income less Expenses. Financial freedom should always be our goal.  We do this in two ways:  Increase income and decrease expenses.  That will increase our savings which leads to financial freedom.


Income is the most difficult component of the equation to influence.  It largely depends on your ability to get other people to give you money.  We are going to cover in more detail how to do this in other posts. Here, we will simply emphasize the importance of trying to shift income from active (job) to passive (rent, royalty) income.

Housing Cost 

The cost of housing is a far easier component to influence and far more flexible as your life progresses. An enormous amount of criteria goes into selecting what kind of housing is right for you and your circumstance.  Those criteria are likely to vary dramatically over your lifetime.  Here are a few items to think about that will save some money:

Moving is Expensive 

Well, if you can simply fit all your belongings in a duffel bag, it's not, but if you have to sell one house to get another, the expenses can really ad up.  In the latter case, some long term planning can pay off big time.

Life has a way of throwing us curveballs from time to time.  Finding ways to prevent that from happening is really important.  So think about what is your income situation and your family life going to be like for, say, the next decade or two before you jump into huge expenses.

Fixed Expenses 

Fixed expenses are the ones that are, well, fixed.  There is not much you can do to change them and they usually stay the same over an extended period of time.  Mortgage, rent, taxes and insurance fall into this category.


For most homeowners, interest is the biggest part of the monthly mortgage payment.  Mortgage interest rates do change over time so it is important to keep an eye on them.  However, re-financing usually come with significant costs involved.  Use this housing cost control with great care.


Rent changes far more frequently than a mortgage does.  The most frequent change is when the landlord raises the rent every year.  Take some time to think about why he might do that.  It might not be pure greed.  If it is greed, you do have some ways to respond.  Find out what rent for a comparable apartment is in your area.  If he just does not like you or needs your place for something else and is using the rent to encourage you to move, there is not as much you can do.


Taxes is probably the fixed expense you have the least control over, but be sure to check how it compares to that of your neighbors.  Maybe you can have it reduced.  Also, be sure to take advantage of every rebate or incentive your municipality offers.


Insurance is probably the smallest of your fixed expenses, but do not neglect to review this at least on an annual basis.  Remember, with the magic of compound interest over a very long time even a very small amount of saving can make a huge difference later in life.

Variable Expenses 

Variable expenses are the ones you do have at least some control over.  Maintenance, utilities and furnishings fall in this category.


Except for wear and tear, maintenance is usually included when you rent.  When you own, that broken pipe or the rotten window will be your own responsibility.  Some maintenance items can be deferred. Others need to be taken care of right away if neglecting them would cause other damage to occur.


The control you have over the utility bill will depend a great deal on whether you rent or own. Sometimes heat and/or electricity is included in the rent.  Even then, you may have some control. The relationship you have with the landlord might influence your rent, so do pay attention to how you use utilities and let the landlord know that you do.  He might go easy on you next time your lease is renewed because of it.  At other times, these are separate charges and how you use them directly influences what you have to pay.  You might even consider some simple improvements like closing air leaks around windows and doors or pay attention to how you use your appliances to save on electricity.

Owners have a lot more control and a lot more reason to pay attention to this housing cost component.  There are lots of things you can do to save on utilities.  Some are easy and inexpensive to do.  You might even be able to weather strip doors and windows yourself.  Others such as insulating attics and walls, replacing an outdated furnace or installing solar panels or a wind turbine are big projects.  It could take years to recover the expense.  Ask yourself some questions about what makes sense in your particular circumstances.


This is one category where you have almost complete control.  Cardboard boxes make excellent shelves, even tables.  They are great choices when your time horizon is really short.

For most longer term arrangements something a little sturdier makes more sense.  Furniture is the kind of goods that become outdated long before they are worn out.  Worn out can mean different things to different people.  What is just a scratch to one person might be broken to another.  How important is it to you that your home is spotless?  Is durability and sturdiness more important to you than modern design?

Furnishings also include such things as curtains, carpets, rugs, kitchen utensils, bath and bedroom supplies.  As always, spending is about getting the right value for your money.  What is important to you?

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