Did moving to the suburbs save me money?

When Kim and I moved last summer from our riverfront condo to this country cottage on the outskirts of Portland, one of my primary aims was to slash our spending on both housing and food.

Although we owned our condo free and clear, living there still cost us roughly $1200 per month. Plus, there were the added costs that came from living so close to bars and restaurants. Sure, we didn’t have to eat out as often as we did — we understand that was a choice — but we enjoyed exploring what the neighborhood had to offer.

Well, I’ve now had time to gather enough data to determine whether we were able to achieve this goal, to cut our monthly costs. I’m pleased to say the answer is “yes”! But for a few years, this gain is going to be completely negated by our massive home remodeling project.

Let’s look at some numbers.

Saving on Housing

To start, here’s how my monthly housing costs have changed:

  • During the first four months of 2017, we paid an average of $1169.91 to live in our condo. Of that, $644.65 went to our HOA and utilities. The remaining $525.27 was spent on taxes and condo insurance.
  • During the first four months of 2018, we paid an average of $472.55 to live on our house. Of that, $187.91 went to utilities and $284.64 went to taxes and insurance.

Before we made the move, I estimated that it’d cost us about $500 per month for housing expenses. That was a good guess. My expenses are actually a little lower than that. And because Kim is paying me $500 per month to “vest” into ownership of the house, my net monthly housing costs are actually minus $21.45. I’m making money by living here! (Haha. I wish.)

Food for Less

Meanwhile, our eating habits have also changed. We don’t go out to eat nearly as much as we used to. When we do dine out, we choose cheaper places. (Our current neighborhood isn’t quite as hip as our old neighborhood.) Last night, for instance, we hit up our favorite pub. It cost us $54, and that’s expensive for this neck of the woods. In our previous neighborhood, we’d often hit a hundred dollars when dining out.

Here’s how my food spending has changed:

  • During the first four months of 2017, I spent an average of $568.42 per month on groceries and $554.14 on restaurants. That’s a total of $1169.91 per month on food. Holy cats! (And that doesn’t include money that Kim paid for groceries…)
  • During the first four months of 2018, I spent an average of $477.33 per month on groceries and $332.01 per month on restaurants. That’s a total of $809.34 per month on food.

Let me be the first to point out that I spend a lot of money on food. I acknowledge that. This wasn’t a weak spot in my budget back when I started Get Rich Slowly in 2006, but it certainly is today!

That said, moving to the suburbs did indeed help me spend less on food. My grocery bills aren’t down as much as I’d expected — only about 16% — but that’s still saving me nearly $100 per month. Meanwhile, my restaurant spending has been cut nearly in half! Overall, my monthly food budget has declined by 28% (which is more than $300 per month).

Creating Cash Flow

When we were planning for our move last spring, I wrote that I hoped my cash flow would improve by $1200 to $1300 per month. With the reduction in housing and food spending, I’ve saved an average of $1010.58 per month so far in 2018. When you add in Kim’s monthly $500 “mortgage” payment to me, my cash flow has improved by $1510.58.

That’s outstanding!

“But wait, J.D.” you may be saying. “Have other aspects of your budget ballooned because of the move? Are you driving more, for instance? And what about your outlandish home improvement projects? You’ve already admitted that you’ve spent roughly $100,000 on renovations since moving in!”

I am spending about twice as much on fuel as I was before. During the first four months of 2017, I spent an average of $25.79 per month on fuel. So far in 2018, I’ve averaged $56.69 per month on fuel. Other than that, however, the move has had no adverse effect on my finances…except for the very expensive remodeling projects we’ve been doing.

The Big, Fat Elephant in the Room

I haven’t included the remodeling costs in the above numbers because they’re not a regular expense. Trust me: I’m perfectly aware of how much I’m spending on home improvement, and it’s caused me plenty of anxiety. But those costs aren’t recurring, so I don’t include them when calculating average monthly expenses.

What I have been doing is some mathematics gymnastics:

  • My cash flow has improved by $1510.58 per month.
  • Our pre-deck (and hot tub) home improvement costs totalled $92,934.61. Of that, $59,000 came from selling the condo, which means we’ve had $33,934.61 in un-budgeted home improvements since moving in.
  • We don’t have a final tally on the deck and hot tub project (and won’t for several weeks), but I expect it to be close to that $33,934.61.

Based on these numbers, we can calculate how long it will take to recover the remodeling costs (compared with having remained in the condo). Dividing our $33,934.61 excess costs by my $1510.58 per month improved cash flow, we find that it’ll take 22.5 months — just under two years — to compensate. And, of course, it’ll take roughly the same amount of time to compensate for the deck and hot tub.

Translation for non-nerds: Moving from the condo to this house saved me just over $1500 per month. This savings has been temporarily negated by all of the home projects. But after about four years — assuming we find no further problems — we’ll pass the break-even point. At that time, the move will become a financial win!

Fingers crossed, my friends. Fingers crossed.

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Prepare Now or Perish: 5 Fascinating Jobs of the Future

During the late 19th and early 20th centuries, the buggy industry went through a crisis. A new invention was about to take the jobs of hundreds of thousands of craftsmen and parts manufacturers. And the horse breeding industry was about to take a hit as well.

It was the end of the Industrial Revolution. Machines continually replaced both skilled and unskilled laborers. The car was about to do it again.

Protests happened, but the juggernaut could not be stopped. While it took 50 years to completely displace the horse and buggy, it happened. But the advent of the car created a whole slew of new jobs from mechanics to body repairmen to car electricians.

We’re in the midst of a similar revolution. Automation is disassembling jobs. Even writers could find themselves out of a job someday because of AI and machine learning.

But with such change comes new things. New jobs will arise and if we’re smart, we’ll acquire new skills and pivot gracefully. Here are some fascinating jobs already on the horizon.

1. Space Habitat Design

Engineers are great at making things that last. They aren’t so good at making livable spaces. That’s where architects come in.

There will always be a need for architects and while brick and mortar might not be feasible in space, the concepts of comfort and aesthetics will never go away. Jeff Bezos would probably agree. He wants to put one trillion people in space.

And he’s put a lot of money into doing so. I’m willing to bet that his company Blue Origin will soon need both designers and architects who specialize in space living. Start studying now!

2. People on Demand and On the Go

The autonomous vehicle revolution is on its way. But what will people do with all that time they are no longer paying attention to the road?

If you’re smart, you’ll use your time wisely. This means getting stuff done.

Whole new industries will crop up around the autonomous car industry. We’ll see people basically living on the move. And jobs will crop up as well.

Imagine getting your haircut on your commute. How about a doctor’s appointment or even a violin lesson. The infrastructure for experts and people on demand is already there with things like Uber and AirBnB.

Maybe you’ll be the first person to create a professional share business. Let me know if you do, I might want in on it.

3. Autonomous Car Traffic Controller

It might be a while before cars can fully govern their own traffic patterns. What if the President comes to town and traffic needs to be diverted? Unless we invent the Fate Super-Computer soon, AI and machine learning just aren’t ready.

Just like airports with flight traffic controllers, cities will need people to monitor car traffic. Cars will possibly communicate with a central system in the city and someone will sit behind a console and respond if something goes wrong.

This is a short-term solution to the problem of autonomous vehicles in large cities. AI and machine learning will eventually take over.

4. Man-Machine Teaming Manager

Alan Turing understood that machines will never think like us. They may be able to approximate human learning and speech patterns, but they won’t ever be human. Thus we will need people who understand machines, especially once machine learning gets better.

In the future, we will no longer “program” our computers. We will teach them things much like we train a dog or a young human. But once they learn, they take over the tasks taught.

This means that machines will be capable of making and completing their own goals much like a human employee. If you’ve ever worked in either a Quality Assurance or HR department, you’re probably imagining the headache. How do you manage both machines and humans working independently in the same space?

What if the machines perform way better than the human? What if the machine develops its own goals that supersede the goals of the company? What if they build Skynet? (Just checking if you’re awake out there.)

You will need an expert in both machine learning and how learned machines interact in a human environment. You will need someone to help you set up a plan and set up future interactions and expectations for machine-human collaboration.

5. Human Designer

While we watch countless films and TV episodes about androids that look like us, you might look for a brand or logo etched into the DNA of actual humans some day. That’s right. The world of Gattaca might only be a few years away.

Right now, researchers are working on the ability to make changes in target DNA. Gene editing is already a thing. Soon we’ll be able to go to our local clinic, pick out child’s traits, and get implanted.

The messy way we created humans might be a thing of the past. There will be a need for people who know how to edit genomes and the DNA of future children without messing up. From technicians to full PHDs, a whole slew of jobs will appear once we finally figure out how to design humans from the DNA up.

Don’t Panic. Just Pivot.

There is no need to panic when change happens. Even if you failed to see it coming, you can always make changes in your own life to fit the times. Just like a brand or company must pivot to survive at times, you must remain open-minded and flexible.

The best companies continually add value to their products and services. As an entrepreneur, it’s your job to add value to yourself and your business. Keep looking to the future and you’ll continue to profit. Stagnate and you will surely fail someday.


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Is it better to rent or buy a home? ~ Get Rich Slowly

I’ve been a homeowner for 24 of the last 25 years. Based on this, you might think I’m an advocate of homeownership over renting. That’s not the case. The older I get, the more I appreciate there’s no correct answer in the perennial “is it better to rent or buy?” debate. Sometimes buying a home makes the most sense. Sometimes renting is the smarter choice.

In an editorial in the June 2007 issue of Kiplinger’s Personal Finance, Knight Kiplinger wrote, “It often costs less to rent. The annual cost of owning a property, be it a house or a condo, is usually greater than the cost of renting, after taxes.” I agree.

Today, let’s look at a handful of ways to evaluate the rent versus buy decision from a financial perspective.

The Price-to-Rent Ratio

One way to tell whether it’s better to rent or buy is by calculating the price-to-rent ratio (or P/R ratio). This number gives you a rough idea whether homes in your area are fairly priced. Figuring a P/R ratio is simple. All you need to do is:

  1. Find two similar houses (or condos or apartments), one for sale and one for rent.
  2. Divide the sale price of the one place by the annual rent for the other. The resulting number is the P/R ratio.

For example, say you find a $200,000 house for sale in a nice neighborhood. You find a similar house on the next block for rent for $1,000 per month (which works out to $12,000 per year). Dividing $200,000 by $12,000, you get a P/R ratio of 16.7. But what does this number mean?

Writing in The New York Times, David Leonhardt says, “A rent ratio above 20 means that the monthly costs of ownership well exceed the cost of renting.” That’s a little opaque, I know. Leonhardt is saying that the higher the P/R ratio, the more it makes sense to rent — and the less it makes sense to buy.

The normal P/R ratio range nationwide is between 10 and 14 (meaning it would cost between $1200 and $1600 to rent a $200,000 house). During the 1990s, just before the housing bubble, the national P/R ratio was usually between 14 and 15 (about $1100 to $1200 to rent a $200,000 house). During last decade’s housing bubble, national price-to-rent ratios rose to 22.73 (in 2005) then to 24.50 (in 2007) before the market collapsed. As most folks were rushing to buy homes, the numbers said they ought to be renting.

Based on this info, I’d argue that:

  • When price-to-rent ratios are under 12, it’s generally better to buy than to rent.
  • When price-to-rent ratios are between 12 and 15, the financial decision is murky.
  • When price-to-rent ratios climb above 15, you’re probably better off renting.

Nationwide numbers don’t tell the full story, of course. While the national price-to-rent ratio might be around 20, the actual numbers in your city could be very different.

Price-to-Rent Ratios for U.S. Cities

In the past, I’ve struggled to find current price-to-rent ration figures. Recently, however, I learned that Zillow has a dedicated page for researching housing data. From here, you can download tons of different tables related to home sales and rental prices, including monthly price-to-rent info from October 2010 until today. If you’re looking to relocate, this is a fantastic resource for finding where your housing dollars will go farthest!

For kicks, I wasted ninety minutes playing with price-to-rent ratios using Zillow data. (What can I say? I’m a nerd!) I downloaded their list of median home prices and median monthly rents, then calculated the P/R ratio for 48 major metro areas. (For a variety of reasons, this is a somewhat arbitrary selection of cities.) Here’s my list of price-to-rent ratios in the United States as of January 2018.

Current Price-to-Rent Ratios

If you’re moving to Scranton for your new job at Dunder Mifflin Paper Company, it’s likely you’ll want to purchase a home. But if you’re headed to the Bay Area, your best bet is going to be to rent.

I’m somewhat skeptical that these numbers are accurate — they do come from a site eager to create homebuyers, after all — but it’s tough to find better info. As far as I’m aware, there’s no reliable source that generates these stats on a regular basis. (I personally believe numbers from articles like this are more accurate. However, that article is also eighteen months out of date and doesn’t explain its methodology.)

Please note that city-wide price-to-rent ratios only really matter if you’re moving from another town. Otherwise, what actually matters are price-to-rent ratios for the specific properties you’re thinking of buying or renting.

Home Price vs. Household Income

Another way to gauge the cost of housing is to compare it to your family’s income. From 1984 to 2000, median home prices were about 2.8 times the median yearly family income. (In other words, the typical house cost about three times what a family earned in a year.) During the early 1970s, home prices were about 2.3 times median family income. During the housing bubble, this ratio jumped to 4.2.

These numbers may not mean a whole lot on their own, but they can give you some sort of idea whether housing is overpriced in your area. Plus, it seems safe to assume based on past figures that most families can comfortably afford a home that costs about 2.5x their annual income. (So, if your family makes $80,000 a year, you can afford a $200,000 house.)

According to the most recent numbers from the U.S. Census Bureau, the median household income in the United States was $57,617 at the end of 2016. (Average household income is greater — $73,207 — but that number is skewed by high earners, which is why I prefer to use the median.)

Median Household Income

Using the current U.S. median home price of $232,700, we can see that home prices are currently running at about 4.04 times the typical household income. This ratio isn’t quite as high as it was during the housing bubble, but it’s still pretty steep.

My Favorite “Rent or Buy?” Calculator

Finally, I want to share what might be my favorite way to compare the costs of renting against the costs of buying.

The New York Times has a great rent vs. buy calculator that can help you decide which is best for you. Just plug in the numbers for your situation, and the calculator tells you how long it would take you to break even if you bought a house. This calculator is an amazing tool. Although it lives behind a soft paywall (which can be circumvented using incognito mode in your browser), it’s well worth using if you’re trying to make a decision about whether to rent or buy.

For fun, I ran the numbers for my own situation. Last summer, Kim and I purchased our current home for $442,000. When you figure all of the remodeling we’ve done, our actual cost will be closer to $600,000. (Holy cats!) Based on our situation, the NY Times calculator says that we’d be better off renting if we could find a similar property for less than $2767 per month.

Better to Rent or Buy?

Scanning current listings, there are three nearby rental homes similar to ours (more than 1200 square feet, more than an acre of land). They’re fetching $2900 to $3000 per month. So, it sounds like buying or renting a property like ours in Portland is a toss-up at the moment. (If I run the numbers using our home’s actual purchase price — $442,000 — I’d have to be able to rent for less than $2100 for that to be the smarter option.)

The Bottom Line

Deciding whether to rent or to buy is a complicated financial and emotional decision. I believe it’s a shame when folks who are unprepared get driven into the housing market due to misplaced notions of imagined benefits. Homeownership is not a panacea. Renting is not universal folly.

Part of the problem is the vast Real-Estate Industrial Complex, each piece of which has a vested interest in convincing consumers that bigger is better. (As I mentioned in my recent article on the history of homeownership in the U.S., the real estate industry is a relatively recent invention, barely 100 years old. But in that hundred years, it’s grown into a powerful force in our economy.)

The housing industry does its best to propagate certain myths about homeownership, myths like:

  • If you rent, you’re throwing your money away. (This is false. As with all financial choices, there are opportunity costs whether you choose to rent or choose to buy.)
  • Owning a home is a forced savings plan. (Also false. Yes, it’s possible to build equity in a home if you buy it in the right place at the right time and/or you stay put for a while. Most folks don’t stay put, however, so they end up paying a whole lot toward interest and very little toward building equity before buying a bigger, “better” place.)
  • You should buy as much home as you can afford. (Complete and utter bullshit. You should spend as little as you possibly can. Instead of pushing the upper bounds of your housing budget, as happens in most cases, you should instead be aiming as low as you can go.)

Now, let me be clear. There’s no question that buying a house makes sense for some folks, but mainly for non-financial reasons. Owning a home gives you stability (you’re not at the mercy of a landlord) and freedom (you can do what you want with the place). Heck, last year I chose to buy an eighty-year-old “country cottage” on the outskirts of Portland, so I completely understand the non-monetary reasons for wanting to own.

But there are also advantages to renting.

For one, you have flexibility; you can move at a moment’s notice. For another, you’re not responsible when things go wrong. If the shower starts leaking before you leave for your vacation in Duluth, you don’t have to worry about it — you call in the landlord.

If you decide to buy a home, do it for the right reasons: because it fits your goals and will make you happy. Don’t do it because you think it’s a good investment. A mortgage is not a retirement plan — it won’t make you rich. Instead, think of it as purchasing a way of life.

If homeownership is a lifestyle you want and can afford, then buy. If not, rent.

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Is applying for Social Security more complicated than it needs to be?

My mother turned seventy a couple of weeks ago. This means a couple of things:

  • First, she’s reached the age at which she can receive maximum retirement benefits from Social Security.
  • Second, it’s time for her to start taking Required Minimum Distributions from her retirement accounts.

If you’ve been reading Get Rich Slowly for a while, you know that these two routine tasks are less than routine for my family. My mother has fought a long-time battle with mental illness. After a crisis in 2011, my brothers and I realized that she could not live alone. We found a highly-regarded local assisted living facility that specializes in patients with memory issues. (Mom has some sort of cognitive disability that includes memory loss, but which the doctors have been unable to diagnose.)

For the past seven years, Mom has lived at Happy Acres in a comfortable apartment with her cat (Bonnie) and her television. When I see her, I often ask if there’s anything more she needs or wants. She assures me that this is all she needs to be happy.

Mom and Bonnie

At this point, Mom struggles with routine personal hygiene, so there’s no way she can take care of tasks like signing up for Social Security or taking withdrawals from her retirement accounts. As her sons, that’s now our job. (And we’re happy to do it.)

You might think that this process would be easy — but you’d be wrong. I suspect that in most cases, getting retirement benefits started is easy, but it’s much less so in our situation.

A Little Bit of Kafka

At first, my brother Jeff and I thought that setting up Social Security would be simple. He and I both have Power of Attorney. We’re accustomed to this allowing us to breeze through most financial tasks as if we were Mom herself.

In March, about a month before Mom’s birthday, I spent an afternoon at the local Social Security office. I took all of the documentation that I could gather.

I arrived to find the waiting room was packed with other folks applying for benefits. It was standing-room only. Rather than get frustrated, I sighed and resigned myself to waiting. And wait, I did. I waited for two hours before my number was called. (It was all fine, though. I spent the time absorbed in a good book.)

When my turn came, I sat at the desk and talked to the clerk. “I’m here to apply for Social Security benefits for my mother,” I said.

“Is your mother with you?” the clerk asked.

“No,” I said. “But I have Power of Attorney.” I pulled out the paperwork to offer proof.

The clerk waved her hand and shook her head. “The Social Security Administration does not recognize Powers of Attorney,” she told me. “To conduct business on your mother’s behalf, you must be a designated representative, a legal guardian.”

“What does that mean?” I asked.

“For all practical purposes, it means you probably should make an appointment to bring your mother in with you. That’s going to be the easiest thing to do.”

“Okay,” I said. “But she’s not really going to be able to carry on a conversation or to make an informed decision about anything. Still, let’s make an appointment.”

“Even if she’s not mentally fit, she has to be the one who applies in person,” the clerk said. She clicked at her keyboard, searching for appointment times. “I’m sorry, but we don’t have any appointments available.”

I was puzzled. “Let me get this straight. Mom has to apply in person. To apply in person, we have to make an appointment. But there are no appointments available?”

“Well, there three other options,” the clerk said. “She can do what you did today and wait in the lobby. She can call each morning to see if there are any cancellations. Or she can apply online. However, she has to apply herself. You can’t fill out the application for her.”

I’ll admit that I was both baffled and a little steamed. “She’s not able to fill out the application herself. She’s not capable,” I said. “I don’t think it’s a good idea to have her wait here with me for two hours as a drop-in. And calling the day-of to get an appointment is problematic. It would take roughly three hours from the time I called in order to get her here.”

The clerk shrugged. “I don’t know what to tell you,” she said. “Those are your three options.”

Skirting the Law

When I returned home, I called my brother to explain the situation. “I feel like there’s no way we can get this done,” I said, “unless we fudge things a little.”

“What do you mean?” he said.

“Well, there’s no way for Mom to complete the application hereself, right? Legally, she’s required to. But what if we completed it for her while she’s in the room?”

“I’m okay with that,” Jeff said.

And that’s what we did: Jeff and I sat with Mom and worked through the online Social Security benefits application.

Much of the application asked for standard stuff, such as age, mailing address, and so on. It was easy for us to answer those questions. But some of the questions required sleuthing. To set up Mom’s online Social Security account, for instance, we had to puzzle out a battery of questions drawn from her credit history. (Solution? Just pull a free credit report, which you’re allowed to do three times per year.) To actually complete the benefits application, we needed to figure out important dates regarding her marriage and her work history.

Whenever we reached a question that stumped us, we asked Mom for the answer. She never had the answers, though, so we had to dig through various documents to find the info.

After a couple of hours, we’d finished the application. We asked Mom to type in her name for the digital signature. (Even that was tough for her.) The process was over…or so we thought.

About a week later, we got a letter in the mail from the Social Security Administration. “Thank you for contacting us for an appointment to visit our office,” the letter read. “This is confirmation of the date and time of your appointment.”

“What in the world is this?” Jeff asked me. “We never made an appointment for Mom.”

“I have no idea,” I said. “I thought we’d done everything we need to do at this point. But I’ll tell you what. It sounds like we have a firm date and time for an appointment, so let’s just take it. We may be duplicating our efforts, but that’s okay. I’m willing to sacrifice a few hours of my time just to make sure everything is correct.”

Return to Purgatory

Jeff handled everything with the assisted living facility, arranging for Mom to have an early breakfast, and getting her approved to take a field trip. His wife showed up yesterday morning just to make sure everything went according to plan.

Meanwhile, I left the house at 7:30, stopped by the family box factory to pick up supporting documentation, then headed to Happy Acres to pick up Mom.

When we reached the Social Security office at 8:55, there was already a long line at the door. “There’s no way we’re going to get inside in time for our nine o’clock appointment,” I thought to myself, but it turns out I needn’t have worried. When the office opened, a security guard summoned folks with appointments to the front of the line. Mom and I went inside to meet the clerk who would be conducting the interview.

Our clerk was both friendly and helpful. He was also meticulous and business-like. At first, he directed his questions to Mom (as he should have), but when it became clear that Mom couldn’t answer for herself, he addressed me instead.

“We’ve received your mother’s application for retirement benefits,” the clerk told me. “But she’s also eligible for survivors benefits. That’s what today’s interview is about. We want to get her set up in the system so that she receives everything she’s due.”

The clerk interviewed us for about twenty minutes. Unfortunately, we weren’t able to answer all of his questions because we weren’t prepared for them. When did Dad die? I remember that date very clearly. When were Mom and Dad married? I don’t know off the top of my head and Mom can no longer remember.

“Do you have a copy of their marriage certificate?” the clerk asked. No, we do not. “Ah, you’ll need to get a certified copy and mail it to me in order to complete this process.”

“How do I do that?” I asked.

“You’ll need to contact the Department of Vital Records in whichever state she was married,” he said. “Once you get a certified copy, mail it to me in this envelope. After we have all of the documentation we need, benefits will begin a few weeks later.”

To Be Continued…

Last month during my road trip through the southeastern United States, I stopped to visit my pal Cameron Huddleston in Bowling Green, Kentucky. Huddleston, a personal-finance columnist, has experienced something similar herself. Her mother has Alzheimer’s, so Huddleston has had to learn to manage her money. And, in fact, she just signed a deal to write a book about managing your parents’ money.

“It’s kind of a boring topic, but it’s important,” Huddleston told me. “It’s something that more and more people are wrestling with, especially as lifespans increase and personal finances become more complicated.” She hopes to produce a useful guide to help people like me figure this stuff out. From what we can tell, nothing like this exists right now. It’s like each person in my situation has to re-invent the wheel, to puzzle through the process on our own each time. I’m eager to be the first person to buy Huddleston’s book!

Obviously, my family still has work to do.

From what we can tell, Mom’s application for Social Security retirement benefits has been accepted and now it’s simply a matter of waiting for payments to begin. (This can take up to three months, apparently.)

Meanwhile, in order for her to receive survivors benefits, we need to track down a copy of her marriage certificate, which I suspect is going to eat another couple hours of my time. That’s a task for this afternoon, I guess.

Plus, I haven’t even started talking to Vanguard about how to take Required Minimum Distributions from Mom’s IRA. We have another 5-1/2 months to solve this piece of the puzzle. (RMDs must begin by the time the account holder is 70-1/2 years old.) I’m going to wait until the Social Security benefits are finally flowing before I move on to the IRA.

One final task? The next time I see that Mom is having a lucid day, I want to ask her what we can buy her to improve her life. She says she’s content sitting in front of the television with a cat in her lap, but I feel like there must be something more we can do for her. Maybe get her a second and third cat? Maybe get her a super-deluxe television? Or how about buying a fancy chair with built-in massage?

Mom has some money now. It’d be awesome to use that money to give her a better life.

Important footnote: Dad died in July 1995. Mom has missed out on 23 years of Social Security survivors benefits because we weren’t aware that she should apply for them. That’s crazy! “Do you have any literature on survivors benefits?” I asked the clerk at the Social Security office yesterday. He have me a few pamphlets. Soon, I’ll read all of this material and write a short blog post summarizing the most important pieces.

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What’s your why? My presentation on the power of purpose

Today, I’m pleased to present the first-ever video from the Get Rich Slowly channel on YouTube. If all goes according to plan, there will be many more such videos in the future, not all of which will be shared here on the blog. So, if you’re interested in catching all of the video material I produce, you should subscribe to the YouTube channel!

This first clip is a 27-minute recording of a talk I gave on April 15th at Camp FI in Spring Grove, Virginia.

For those unfamiliar, Camp FI is a series of weekend retreats that let a few dozen folks come together to chat about Financial Independence and early retirement. The events are largely unstructured, a chance for attendees to meet and mingle with like-minded folks. But they’re not entirely unstructured. Throughout the weekend, there are a handful of presentations on subjects like real-estate investing, safe withdrawal rates, and credit card hacking.

But when I speak, I like to talk about Big Picture topics, such as the importance of purpose and why you should create a personal mission statement.

In fact, that’s the subject of this presentation, which took place on the twelfth anniversary of Get Rich Slowly. “What’s your why?” I asked attendees. Why do you want financial independence? Why do you want to retire early? Why do you want to sacrifice today in favor of tomorrow?

Typically when I share videos from other people, I provide in-depth summaries. As an old man, I’d much rather read a presentation than be forced to watch it. I don’t want to force you folks to watch videos either. In this case, however, I’m not going to do that. If you’ve been following me for any length of time, much of this will be familiar to you. (See how to write a personal mission statement if you’re new around here and don’t want to watch the video.)

Whether or not you watch this particular video, I’d be grateful if you subscribed to the GRS YouTube channel. Apparently certain features on YouTube can’t be “unlocked” unless you have enough folks who want to view your stuff.

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The high cost of homeownership ~ Get Rich Slowly

This week, Kim and I hired a contractor for what we hope will be the last major project on the “country cottage” we bought last summer. We’re replacing our rotting back deck and installing a hot tub. It’s an expensive (and extensive) project.

Our deck project

The cost hurts all the more because we’ve already poured nearly $100,000 into performing needed repairs on this property. (In fact, as you may remember, we considered forgoing the deck replacement altogether.)

Budgeting for this job led me to reflect on the costs of owning a home. Like my colleague J.L. Collins (who believes a house is a terrible investment), I refuse to join to the cult of of homeownership. Yes, I own a home — and have for 24 out of the past 25 years — but I’m under no illusion that this is a smart financial move. Kim and I want to own an acre of land in the country, which is why we bought this place. We didn’t buy it because we think it’ll make us wealthy. (It seems to be having the opposite effect!)

Today, both for entertainment and catharsis, I want to spend some time talking about the high costs of homeownership. And lest you believe the stories below simply prove that I’m a fool with money, I want to point out that my experiences seem typical. Everyone I talk to about homeownership has similar tales to tell. I’ll bet you do too!

Note: In an alternate reality — maybe my next life? — I’d be a competent carpenter and handyman, much like my pal Mr. Money Mustache. Pete has the skills and experience necessary to do most major home-improvement jobs himself. This saves him tons of money. I don’t have these skills. I’ve begun teaching myself how to make minor repairs, and I can even build some simple stuff out of wood. But I don’t know how to replace a roof. I don’t know how to hang siding. I don’t know how to build a carport. I don’t know how to build a deck and install a hot tub.

My First Lesson in the Cost of Homeownership

In June of 1993, when I was 24 years old, my ex-wife (Kris) and I bought our first home. It was a nice ranch-style house in my home-town. The seller had prepped it for market by keeping the lawn a gorgeous emerald green. It was well-trimmed and well-watered even until the day we moved in (June 23rd).

I’d grown up in the country, just outside of town, and our lawn had never been gorgeous. It was a rough patch of brown grass and — mostly — various weeds. I relished the opportunity to have a lush green lawn.

I did everything I could to maintain the green. I watered for an hour in the morning. I watered for an hour in the evening. Sometimes I watered for an hour in the afternoon. Throughout the month of July, I probably watered the lawn an average of twenty hours a week. (Seriously.) I mowed twice a week with a reel mower. I also applied a treatment of fertilizer. To weed the lawn, I got down on my hands and knees and crawled over every inch, pulling noxious plants by hand. No joke — I actually did this!

The days were long and very hot, but my lawn weathered it well. As July drew to a close, our lawn was, by far, the most spectacular lawn in the neighborhood. The most spectacular lawn in the city. For all I know, it was the most spectacular lawn in the state! It was a carpet of deep green, completely weed-free. I was a proud, proud man.

One weekend in early August, we attended a yard party at a friend’s house. The grown-ups sat around and talked about life, talked about gardening. The conversation turned, and people began to complain about their water bills. Water bills? Kris and I exchanged puzzled glances. Water bills? The conversation continued, and people began to compare water bills.

My heart began to sink. The implication was clear. I mustered the courage to ask, in a small voice, “Do you mean you have to pay for water?”

“Well,” said one woman. “Do you live in the city?” I nodded. “Do you have your own well?” I shook my head. I had grown up with a well, but didn’t have one now. “Then you’re on city water, and you have to pay for it.”

I broke into a cold sweat. “How much does water cost?” I asked. I’d always thought water was like air: a fundamental human right. Free! How could somebody charge for water?

Our first water bill came several days later. It was $80, which seemed like a lot to us at the time — especially since we had budgeted a grand total of zero for the expense.

I cut back my watering after that to just a couple of hours a week.

The Ongoing Cost of Owning a Home

Kris and I learned quickly about the costs of homeownership, as all new homeowners do.

Our first Christmas, for instance, we woke to find that the water heater had failed. Water had been spewing from the pressure-relief valve all night long, flooding the back end of the house. Instead of opening gifts, we spent our Christmas day cleaning up the mess and finding a place to buy a new water heater. Ho ho ho!

The next autumn, we had a wind storm. Kris and I were worried that one of the nearby cedar trees would topple into our house. Instead, the back fence blew over. We got a crash course in paying for and constructing a wooden fence. (We didn’t do a good job of repairing things. Before we moved out of the house in 2004, we had to repair the fence once more.)

Fortunately, these sorts of minor catastrophes were few and far between. Our home was relatively new — built in 1976 — so systems seldom failed. When we spent on the place, it was generally elective stuff: putting in Pergo, painting the walls, building raised garden beds.

In June 2004, after eleven years in our little ranch house, Kris and I bought a bigger place close to Portland. This hundred-year-old farm house stood on two-thirds of an acre of land. Unlike our first home, our second home required a lot of ongoing maintenance. The roof leaked. The wiring was downright dangerous. (The electrician we hired was alarmed at the state of the wiring. He documented it to share in an online electricians forum where his colleagues exchanged horror stories.) Tall trees were diseased and rotten.

Rosings Park in Winter

As long-time Get Rich Slowly readers know, this hundred-year-old farmhouse turned out to be more work than I anticipated. Initially, I believed it was my dream house. I was wrong.

Because our old house had seemed like such a burden, after our divorce I deliberately looked for a place with zero maintenance. I bought a penthouse condo along the Willamette River. (By the way, Kris still lives in the hundred-year-old farmhouse, and she loves it.)

While it’s true that the condo had no outdoor maintenance (that was handled by the home-owners association), things still broke inside the unit. The dishwasher died. The A/C had a chronic coolant leak. Somehow, the bathtub began to drip water into the unit below. The gas fireplace stopped working. The cats tore up the window blinds. And so on.

When you own a home, there will always be repairs — large and small — waiting for your time and money. It’s not a matter of “if”. It’s a matter of how many and how much.

Note:You’ve probably heard the common recommendation that you should budget one percent of your home’s value for annual repairs. (So, for instance, if your house is worth $400,000, you should budget $4000 per year for maintenance.) I like this rule of thumb, but I think it’s a bit misleading. From my experience, the cost of home repairs tends to be “clumpy” rather than smooth. It’s not like you predictably spend $325 per month on maintenance. Not at all! It’s much more common to have a $12,000 repair one year — then spend almost zero for three or four years before the next major thing comes along.

Mo’ Money, Mo’ Problems

Last July, my girlfriend Kim and I moved to our current location, a small home in a quiet area on the outskirts of Portland. We love the house, we love the lot, and we love the neighborhood. The downside? This place has been a money pit.

When we bought our new home, we knew it needed work. The pre-purchase inspection revealed plenty of problems, from a failing roof to rotten siding to crumbling decks. It was even possible that the foundation was falling apart!

While replacing the siding, the contractor discovered extensive rot and moisture damage.

Before buying, Kim and I talked at length about whether we wanted to take on this sort of project. For five years, we’d lived in that cozy condo, which had been relatively trouble-free. Plus, I had been notoriously averse to home improvement (and yard maintenance) in the past. Did we really want to trade our worry-free life for a long list of headaches? Ultimately, we decided that we did.

I crunched the numbers. “If the condo sells for as much as I think it will, we should have $40,000 or $50,000 to make repairs,” I said. “That should be enough to cover everything — unless the foundation is shot.”

The condo sold for more than I expected, which meant that we moved to our new old house with a $59,000 “profit” that could be funneled directly into our remodeling projects. We started right away.

The Money Pit

I’m not sure how things are in other parts of the country, but here in Portland contractors are booked solid for weeks — or months. Because of this, they’re able to charge much higher rates than I’m accustomed to paying. (Higher demand means higher prices, just like you learned in high school economics class.)

Over the ten months we’ve lived here, Kim and I have managed to find folks to make all of the necessary repairs. But it’s been costly. We’ve paid for the following projects:

  • HVAC System. We completely replaced the previous HVAC system, installing an ultra-high efficiency furnace and air conditioner. (In retrospect, the A/C was probably the dumbest home improvement decision I’ve ever made. It seemed like a good idea at the time, though.) Total cost: $15,069.
  • Gas line. The folks who bought our condo didn’t want the gas range, so they simply gave it to us. Great! Except that we didn’t have a gas line running to the new kitchen. We paid a handyman to install everything. Total cost: $1,000 and a lot of cursing.
  • Floors. When we moved in, the floors were shot in every room but two. There was extensive water damage (and rot) in the bathroom and one bedroom. The carpets in three rooms were caked with mold, mildew, and animal urine. (Our entire neighborhood is infested with mice.) It stunk so bad that some days it gave me a headache. We hired a company to replace the carpets, install oak floors in the kitchen, and refinish the wood floors throughout the house. Total cost: $9,585 and mild cursing.

Floor Repair

  • House envelope. Our biggest expense came from having to replace the entire envelope surrounding the home. We paid one company to do all of this work. While replacing the roof, they found extensive rot in one area and had to replace the plywood. While removing the old siding, they found many areas of rot, including a large section behind the bathroom where termites had invaded. This led to an unplanned bathroom remodel (see below) plus some re-framing. Last of all, they replaced the front deck, which had begun to collapse. Total cost: $36,680.56.
  • Gutters. While replacing the envelope, our contractor paid another company to install new gutters and downspouts. Total cost: $1,300.
  • Bathroom. As I mentioned above, we had to tear up half of the bathroom (and part of one bedroom) in order to remove rotted material that was drawing insects to the house. This project was a colossal headache to everyone involved — but it looks great now! Total cost: $4,300.05, many late nights, and tons of cursing.
  • Carport. Over the winter, we discovered that the carport erected by the previous owner was poorly designed. Its huge surface area drained onto the roof of the house, overwhelming gutter capacity. Water would both spill behind the siding into our bedroom and pool at the bottom of our sloped driveway, at the base of the house. We considered demolishing the carport and living without it, but in the end paid a contractor to build us a new one. It was expensive. Total cost: roughly $25,000.

All told, we’ve spent $92,934.61 on remodeling since July 1st. That’s roughly 60% above our $59,000 budget. I guess things could be worse — we might have had to replace the foundation! — but the expense is still painful. Very painful.

When we bought this place, we knew there’d be work. But, as I said, we didn’t know there’d be this much work. I’ll be honest: At times, both Kim and I have felt like giving up. When we think about how much time and money we’ve spent, our hearts sink.

“Do you regret having bought the house?” a friend asked me during my recent road trip across the southeastern U.S.

“You know what? I don’t regret buying it,” I said. “I do regret not having asked for more concessions from the seller. I regret not understanding that a bad inspection report probably meant there were more things wrong with the house than were visible. I regret that our total cost for the place is going to end up closer to $600,000 than $450,000. But I don’t regret buying the home. Kim and I love it!”

Kim and I really do love this house. For where we are in life, it’s perfect. I suspect we’ll live here for a long, long time. That helps ease the sting of remodeling costs a little — but only a little.

“You should watch The Money Pit,” a friend told me recently after hearing about our trials and tribulations. I scowled at her. “No, I’m serious,” she said. “It’s hilarious. Plus, you’ll totally be able to relate to it now. It might actually feel better about your situation.” So, Kim and I watched The Money Pit. It wan’t hilarious — but maybe that’s because it hit too close to home.

No Longer a Shack

Our shiny new floors! title=When I’m out walking the dog, I often stop and chat with neighbors. They’re curious about all of our projects. (We’ve been working on the house almost non-stop for ten months now!)

“You know, I considered buying your house,” one neighbor told me last week. “Before the previous owners put it on the market, I took a look. I decided to pass, obviously. I felt like it was a tear-down. But I’ll give you guys credit. You’ve made a go of it. The changes you’re making look great, although I’m sure they’re expensive.”

This neighbor’s evaluation of the property is echoed by other folks we talk to. “That place is a shack,” one lady told me soon after we moved in. “I’ve been in the house many times. It needs a lot of work.” She’s right. This house did need a lot of work, but I’m pleased to report that it’s no longer a shack.

Now that the hard stuff is over, there are lots of little things left to do — new paint in every room, prepping the guest bedroom, minor repairs all over the place — but the major projects are complete. We’re ready to relax and enjoy the space.

Personally, I’m ready for the bleeding to stop.

One of the primary reasons I wanted to move from the condo was to reduce our average monthly housing expense. Between taxes, insurance, and HOA fees, we were paying more than $1200 per month to live in a place that we ostensibly owned free and clear. It drove me nuts! My calculations showed that the monthly costs for the “country cottage” ought to be less than half that. And they have been.

But that savings of $600 per month is more than outweighed by the huge repair costs we’ve incurred. It’ll take ten to fifteen years to make up the difference, to break even with the condo expenses. Maybe in 2033, I’ll throw a little party to celebrate how smart I was for buying this home…

What about you? What has your experience with homeownership been like? Is it less expensive than renting? More expensive? All things equal, would you prefer to own or to rent? Share your stories of unexpected home expenses — and how you’ve coped with them.

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A brief history of U.S. homeownership

During the month of May at Get Rich Slowly, we’re going to turn our attention to home and garden topics. To start, I want to take a brief look at the history of the U.S. housing market. Some folks might find this dry. I think it’s fascinating.

Private land ownership is baked into the U.S. culture and Constitution. It’s part of the material plenty we expect from the American Dream. For most Americans, homeownership implies success and freedom and wealth.

But for a long time, homeownership was the exception rather than the rule. Only farmers were likely to own land and a house during the country’s early days. With the coming of the Industrial Revolution, homeownership became more common for urban dwellers. Still, less than half of all Americans owned their homes until the late 1940s.

Here’s how U.S. homeownership rates of changed over the past 128 years according to the U.S. Census Bureau and the Federal Reserve Bank of St. Louis:

U.S. Homeownership Rates

The current U.S. homeownership rate as of January 2018 is 64.2%.

I’m sure you could write a doctoral thesis on the reasons for the growth of homeownership over time. I’m not going to do that. After several hours of research into the history of mortgages and the real-estate industry, I feel like we can summarize everything in a few paragraphs. This article — which is information-only — will serve as background for future Get Rich Slowly discussions about homeownership.

In the Beginning

During the 1800s, most folks had no way to own a house. They didn’t have the lump sum required to make the purchase, and banks wouldn’t lend money for average people to buy homes. Mortgages didn’t become common until the U.S. banking system was stabilized following the National Bank Acts of the 1860s.

After this reform, banks began to experiment with lending money for homes, and by the 1890s, mortgages were popular across the U.S — although not precisely as we know them today.

A typical mortgage in the early 1900s might have a term of five years and require a 50% down payment. Plus, they were usually structured with interest-only monthly payments and a balloon payment for the entire principal at the end of the term. Borrowers could (and did) renegotiate their loans every year.

Compare this to modern mortgages, which usually have 30-year terms and require a down payment of only five to twenty percent. (I bought my first home in 1993 with a down payment of less than one percent!)

Mortgages: Now and Then

These early mortgages worked fine until the Great Depression. When that crisis hit, banks had no money to lend — and the average borrower had no cash either. As a result, potential homeowners couldn’t afford to buy, and many existing homeowners defaulted. (At one point during the 1930s, nearly 10% of all homes were in foreclosure!)

Note: This article originally appeared at Money Boss in April 2016. I’ve updated text-based stats through 2018, but graphics-based data is two years old. However, nothing material has changed in the past 24 months.

Bubbles and Booms

To stabilize the housing market, the U.S. government created the Home Owners’ Loan Corporation in 1933, the Federal Housing Administration in 1934, and the Federal National Mortgage Association (now Fannie Mae) in 1938. These institutions helped to arrest the housing crash and, eventually, spur homeownership to new heights.

But it was the G.I. Bill of 1944, which provided subsidized mortgages for World War II veterans, that changed the face of the housing industry and the American economy. From encyclopedia.com:

The GI Bill’s mortgage subsidies led to an escalated demand for housing and the development of suburbs. One-fifth of all single-family homes built in the 20 years following World War II were financed with help from the GI Bill’s loan guarantee program, symbolizing the emergence of a new middle class.

As homebuying became more common (and more complicated), real-estate brokers helped sellers find buyers for their homes. The National Association of Real Estate Boards adopted the term Realtor in 1916. As the housing market boomed during the 1940s and 1950s, so did the real-estate profession.

By 1950, for the first time in American history, more than half of all Americans owned their homes. As demand for housing increased, so did prices.

For 25 years, Yale economics professor Robert Shiller has tracked U.S. home prices. He monitors current prices, yes, but he’s also researched historical prices. He’s gathered all of this info into a spreadsheet, which he updates regularly and makes freely available on his website.

This graph of Shiller’s data (through January 2016) shows how housing prices have changed over time:

The Shiller Index of Home Prices

Shiller’s index is inflation-adjusted and based on sale prices of existing homes (not new construction). It uses 1890 as an arbitrary benchmark, which is assigned a value of 100. (To me, 110 looks like baseline normal. Maybe 1890 was a down year?)

As you can see, home prices bounced around until the mid 1910s, at which point they dropped sharply. This decline was due largely to new mass-production techniques, which lowered the cost of building a home. (For thirty years, you could order your home from Sears!) Prices didn’t recover until the conclusion of World War II and the coming of the G.I. Bill. From the 1950s until the mid-1990s, home prices hovered around 110 on the Shiller scale.

For the past twenty years, the U.S. housing market has been a wild ride. We experienced an enormous bubble (and its aftermath) during the late 2000s. It looks very much like we’re at the front end of another bubble today. As of December 2017, home prices were at about 170 on the Shiller scale.

What caused the housing bubble during the last decade? And what’s feeding the current buying frenzy? That’s a great question, and it’s open to debate. Some folks blame loose lending standards. Some blame a lack of government oversight. Some blame real-estate speculators. Some blame the American propensity for consumption. Some blame cheerleading from the real-estate industry. Me? I think it’s a little of everything.

Sears kit home: The Magnolia

Bigger Everything!

Naturally, increased home prices and increased ownership rates brought increased mortgages. During the past fifty years, long-term mortgages with large balances became more common until now they’re the standard.

Between 1949 and the turn of the twenty-first century, mortgage debt relative to total income of the average household rose from 20% to 73%, and from 15% to 41% relative to total household assets.

One reason mortgage sizes have increased is that housing sizes have increased.

According to the U.S. Census Bureau, the median size for a new home built in 1973 was 1525 square feet. By 2016, that number had jumped to 2422 square feet. In those forty years, kitchen sizes have doubled, ceilings have risen more than a foot, and bedrooms have grown by more than 50 square feet.

But home sizes are ballooning even as households are shrinking! The average household had 2.9 people in 1973. In 2016, the average household had 2.5 people. Let’s run the numbers: Forty years ago, we had 526 square feet of living space per person; today, we have 969 square feet of living space per person.

To me, this seems crazy. Why do we need such huge houses? What’s the point? And do homeowners truly consider the costs when they choose to buy big? A larger home doesn’t just carry a larger purchase price. It costs more to maintain. It costs more to light, to heat, and to furnish. For too many people, big homes are the destroyer of dreams. (I’m not joking. I truly believe this.)

Full disclosure: In the past, I’ve been guilty of pursuing home-size inflation myself, although I eventually came to see the error of my ways. My first house (purchased in 1993) had 1383 square feet. My second house (purchased in 2004) had 1814 square feet. That was “peak bigness” for me. The condo I sold last year had 1547 square feet. And the house we moved into last July has 1235 square feet. I think about 1000 square feet is ideal, but Kim likes having the extra room.

I’m not saying you should live in a shack. Nor am I suggesting everyone should own a tiny home. But I believe it’s important to be logical when it comes to housing. Remember that size comes with a price. If you need the space, buy it. If you don’t, you’re better off saving your money for something else.

The Bottom Line

Housing is by far the largest expense in the typical budget. According to the U.S. government’s 2016 Consumer Expenditure Survey, the average American family spends $1573.83 on housing and related expenses every month. That’s more than they spend on food, clothing, healthcare, and entertainment combined!

Here at Get Rich Slowly, I’m adamant that one of the best ways — if not the best way — to improve your cash flow is by cutting your costs on housing.

Remember, your goal is to manage your financial life as if you were managing a business. If you were looking to balance the budget at a company you owned, you wouldn’t do it by trying to trim the small expenses. No, you’d tackle your biggest expenses first.

If you reduce your labor costs by 5%, for instance, you might be able to save $50,000 per year. But saving 5% on office supplies would probably only save you $50 per year.

The same principle applies in your personal life. If the typical American household cut their grocery budget by 5%, they’d save only $200 per year. If they cut housing by 5%? Well, they’d save $900 per year. So why do so many people put so much effort into clipping coupons while continuing to shell out for more home then they can afford (or need)? Good question.

In the weeks ahead, I’m going to explore different pieces of the housing equation. When does it make sense to rent? When does it make sense to buy? Is it better to prepay your mortgage or to keep it forever? How can you determine how much home you can afford?

If you have a specific question about housing and money, please let me know!

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Why you should choose a cheap place to live

While visiting Raleigh earlier this month, I spent a morning with my pal Justin (from the excellent Root of Good blog) and his wife. As we sipped our coffee and nibbled our bagels, the conversation turned to cost of living. (Money nerds will be money nerds, after all.)

“Things are cheaper here in North Carolina than they are in Portland,” I said. “Food is cheaper. Beer is cheaper. Hotel rooms are cheaper. Your homes are cheaper too. Last night, as I was walking through the neighborhood next to my hotel, I pulled up the housing prices. I was shocked at how low they are!”

“Yeah, housing costs are lower here than in many parts of the country,” Justin said.

“Take our house, for instance. We bought it in 2003 for $108,000. Zillow says it’s worth around $198,000 right now. But I’ll bet that’s a lot less than you’d pay for a similar place in Portland.”

He’s right. Justin and his wife own an 1800-square-foot home on 0.3 acres of land. Their place has four bedrooms and 2.5 bathrooms. There’s only one place for sale in Portland right now that matches these stats and it’s going for $430,000 — more than twice the price the same home would fetch in Raleigh.

Housing prices in Raleigh, NC

Housing is by far the largest slice of the average American budget, representing one-third of typical household spending. Because of this, the best way to cut your costs (and, therefor, boost your “profit margin”) is to reduce how much you spend to keep a roof over your head.

One obvious way to cut costs on housing is to choose a cheaper home or apartment. But if you truly want to slash your spending, consider moving to a new neighborhood. Or city. Or state. If you’re willing to change locations, you can supercharge your purchasing power and accelerate your saving rate.

Cost of living is one of those factors that people seldom consider, but which can have a huge impact on the family budget — sometimes in unexpected ways. According to The Millionaire Next Door:

Living in less costly areas can enable you to spend less and to invest more of your income. You will pay less for your home and correspondingly less for your property taxes. Your neighbors will be less likely to drive expensive motor vehicles. You will find it easier to keep up, even ahead, of the Joneses and still accumulate wealth.

It’s one thing to talk about the effects of high cost of living, but another to actually experience it.

Cost of Living in Real Life

On our fifteen-month road trip across the United States, Kim and I made a point of watching how prices varied from city to city and region to region.

While stranded for ten days in rural Plankinton, South Dakota, for example, I paid $10.60 for a fancy men’s haircut. At home in Portland, I pay $28 for the same fancy haircut. In Fort Collins, Colorado, I paid $30 for a haircut. In Santa Barbara, California, I paid $50 or $60 for the same fancy cut.

Gas was cheaper in South Dakota too. So was food. So was beer and whisky. So were movies. So was just about everything, including housing. Housing prices followed a similar pattern to the haircut prices I mentioned above. A $280,000 home in Portland might go for $300,000 in Fort Collins and $500k to $600k in Santa Barbara. In South Dakota, that same home would cost about $106,000.

A couple of years ago, I exchanged email with a reader who had first-hand experience struggling with the high cost of living. She gave me permission to share her story:

I had been saving about 40% of my relatively modest salary for eight years. I had built up an emergency fund as well as a good sized savings…and then we had kids.

We lost our rent-stabilized apartment right after our children were born. We live in New York City, and while I maintain that there are many things about the city that are actually very budget-friendly (public transit and free entertainment top my list), the cost of rent and daycare in NYC are over the top.

In one year, the cost of a market-rate apartment in our neighborhood plus two kids in daycare ate into my hard-earned savings. By the end of the year, the pot of money that I had worked so hard to save was down by almost $50,000.

Luckily, my husband and I have never carried any kind of debt and had already been living well below our means before the kids came along. But that also meant there was very little fat left to trim in our budget other than rent and daycare expenses. (We’d already dropped the landline, never had cable, cooked almost all of our meals at home, and cut out our modest “allowance” of $50/month for splurges.)

We are the very definition of penny wise and pound foolish!

Eventually, we moved into a cheaper apartment. Although we haven’t had to dip into savings since we moved, we’re still essentially living month to month because of daycare and rent. The neighborhood is cheaper for a reason.

Real Life will force us to make another move in the spring. One of our jobs is going away, so it will force a decision one way or another since we can’t stay in New York on one salary. Change is definitely coming.

This reader and her husband are already frugal-minded — that’s how she built her buffer of savings to start with — so there isn’t much more the family can cut. This is an example where the only real solution is to seek a city with a lower cost of living.

Saving in Savannah

Which places are cheapest to live? Which are most expensive? This map from Governing magazine shows how far the average paycheck goes in 191 U.S. metro areas.

[Cost of Living map]

Dark green (blue?) dots indicate cities where your wages buy more after adjusting for cost of living. Dark brown dots are places where you have to work harder to get what you want. (Click through to play with an interactive version of the map.)

As you can see, large coastal cities tend to be more expensive than smaller towns in the center of the country. If you have a fixed budget, you’ll get more bang for your buck by buying a home in Oklahoma City or Sioux Falls than by living in San Francisco or Washington D.C.

It’s not just coastal cities, though. There are spendy pockets throughout the U.S. from Flagstaff, Arizona to Hot Springs, Arkansas. And some coastal cities — Boston, Houston, Seattle, Tampa — are relatively inexpensive. (In Boston and Seattle, though, that’s because wages are high, not because things are cheap.)

In the middle of our road trip, Kim and I decided to stay the winter in Savannah, Georgia. During our six months in Savannah, we spent much less than we would have for the same lifestyle here in Portland. According to the CNN cost-of-living calculator, Portland is 44% more expensive than in Savannah. (And housing costs nearly three times as much here as it does in Georgia!)

[Cost of Living calculator]

In larger cities, there are often cost-of-living differences between neighborhoods. When deciding where to live in Savannah, for instance, we had a choice:

  • We could rent a small apartment in the downtown historic district for $1750 per month. The place would have been a lot of fun because it was surrounded by shops and restaurants, and it was close to anything we might want to do.
  • We could opt instead for a modest-sized condo on the outskirts of town at $1325 per month. This location was next to nothing. We could walk to the grocery store, but we’d have to drive into the city if we wanted to indulge ourselves.

After considering financial and lifestyle factors, we chose to rent the condo in the middle of the marshlands. On the surface, this decision saved us $425 per month. In reality, it saved us much more than that.

If we had lived downtown, we would have had to pay to park the Mini Cooper ($95/month). We would have been constantly tempted to eat out or go for drinks. It would have been too easy for window shopping to become actual shopping. Instead, we enjoyed one Date Night each week. We spent the rest of our time working and exercising.

I believe that opting for the less glamorous location saved us a minimum of $5000 over our six month stay — and the real savings are probably far greater.

Pinching Pennies in Portland

This same concept — certain neighborhoods costing less than others — was a driving factor in our decision last year to sell our condo and move to “the country”. We loved where we lived, but the costs were crazy.

  • First, there were the maintenance costs for a place that we ostensibly owned outright. Even without a mortgage, we were paying nearly $1200 per month for HOA fees, utilities, insurance, and more. (In our new place, we spend half that.)
  • Plus, there was the sneaky cost of lifestyle inflation. Our condo was in a fun neighborhood filled with restaurants and bars. It was all too easy after a long day to simply walk up the street to one of our favorite spots, where we’d drop $50 or $100 on food and drinks. Moving to our new place cut our restaurant spending in half.
  • Lastly, the cost of goods in our new neighborhood is lower than in our old. In Sellwood, our grocery options were limited. And expensive. The nearest markets were both high-end organic-only affairs, the kind of places you might see on an episode of Portlandia. Yes, the quality was outstanding. But since we’ve moved, we’re spending about 25% less on groceries each month.

Moving helped us save big on some cost-of-living items. But it also brought with it a few increases in spending. Because we’re more rural now, we drive more often. Kim, especially, is spending more on gas. Our “new” home also has greater maintenance costs than the condo. We’ve poured a ton of money into this place since moving in. (I guess that’s not actually a cost-of-living issue so much as a homeownership issue, though.)

My point is that even within a city, there are cost-of-living differences you can leverage to your advantage — especially if you’re willing to live in a rougher part of town.

The Bottom Line

Obviously there’s more to picking a place to live than pure price.

When you choose a city (or neighborhood) to call home, you do so because of the climate, the politics, and the people. You want to live close to friends and family. You want a nice school district. You want people who think and act the same way you do. For those reasons (and others), Omaha might not be a good choice for you. (Savannah isn’t a good choice for me long-term, but it was fine for a few months.)

Here’s the bottom line: Where you choose to live has a greater effect on your long-term financial success than almost any other factor. How much you earn is sometimes more important (not always), in which case cost of living is a close second.

Cost of living can wreak havoc on your pursuit of financial freedom. Or it can help you achieve your goals sooner than you thought possible. The choice is yours.

Other ways to make the most of your housing budget? Consider renting. Live close to where you work so that you can walk, bike, or take the bus. Purchase a house that fits your lifestyle and needs rather than the commonly cited “buy as much home as you can afford”. The latter is self-serving advice from real-estate agents and mortgage brokers. You don’t need a big house; you just need someplace comfortable.

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What You Can Learn from This 19-Year-Old Bitcoin Investor


Crypto still makes me nervous. Maybe it’s the fact I was coming of age between 9/11 and the 2008 financial crisis. I graduated from college during the aftermath of that crisis.

And then I see the people who are already rich because of cryptocurrency investments and I wonder if my feelings are wrong. Besides, I’m no Luke Skywalker here. I can’t really trust my feelings can I?

There is one bitcoin investor out there who is already a millionaire after seven years and he’s saying everybody should ignore their “feelings” about bitcoin and invest. His name is Erik Finman and he’s only 19.

1. The Kid Who Invested His Birthday Money

Most kids will spend their birthday money on a new video game or toy. And if they get $1,000 dollars for their birthday, then they buy a computer or a virtual reality headset. But not Erik Finman.

Finman bought Bitcoin with his birthday money.

Let’s set aside the fact most kids wouldn’t get even $500 for their 12th birthday (I can’t help but see Erik as a privileged brat, albeit a smart one), but kids like Erik are pretty rare. Finman was a failing student in school. His GPA was an incredible 2.1 and he claims a teacher told him to just drop out and work at McD’s.

He didn’t want to go to college. He even made a bet with his rich parents that if he became a millionaire by the time he turned 18 he could skip college. They agreed and Erik got to skip college.

He took the 1k Euros his grandmother had given him to invest in college and bought bitcoins in 2011. Bitcoins were only 10 Euros a piece at the time. But those 100 $10 Bitcoins he bought turned into 401 $8,512 Bitcoins.

Erik Continued to Invest

Some people might sit on their wealth like a dragon and his treasure. Erik did no such thing.  

Once his investments hit $100,000, he sold them and started a company called Botangle. After growing his company, he sold it for 300 bitcoins.

His interests are varied as he’s invested in Nasa recently. He’s helping them launch research satellites into space.

The kid is busy. He speaks at various conferences and he manages his family’s bitcoin investments.

This should be a lesson to any teacher who has given up on a student. We’re talking about a kid who had a 2.1 GPA and dropped out of high school here.

Crypto is the Future

Erik Finman believes cryptocurrency is the future. Fiat currency is still the norm right now, but he believes it’s not different than bitcoin and other crypto. It’s just numbers and make-believe money the same as government-backed money.

Some people have claimed that crypto is nothing more than Monopoly money. A plaything for people who like to make bets. But people like Erik believe it’s going to supplant other currencies one day.

It’s the libertarian dream. A currency that’s unregulated and free of any one government. And it’s an extremely cyberpunk version of our future.

But he does admit that cryptocurrency technology will have to change.  Right now, to mine bitcoin 343 megawatts or the equivalent of 285,833 U.S. homes (average) is what it takes. That’s a conservative estimate.

In the U.S. we’ve moved to more environmentally friendly energy production methods. But most crypto-miners are in China where the country relies heavily on coal-produced energy. Thus, crypto is destructive to the environment as it stands.

The crypto-mining business has inflated the price of PC’s as well. Four years ago, you could be a powerful PC for under $1000. No longer.

Gaming machines use GPUs or graphics cards for rendering images on a screen. Crypto mining machines use them to mine cryptocurrencies. When demand goes up so does price.

Gamers are up in arms about it, but perhaps they should invest in cryptocurrencies so they can afford their gaming hobby.

Finman Tells Millennials (and Founders) to Invest

Some people think Finman is an idiot teenager. But he’s one of the leaders of the next generation of investors. And if he can convince two whole generations to invest in crypto, his cyberpunk dreams might just become a reality.

What does Finman suggest young people do to get enough money to invest in Bitcoin? Find something they love doing. Start a YouTube channel, start a brand, do something and turn a profit from it.

He also believes you should invest ten percent of your income in Bitcoin. The general concensus is that you should invest 20% of your income in retirement for comparison.

He does give a warning. Only invest money you are willing to lose.

This is why many Wall Street gurus say it’s a bad idea. Crypto is extremely risky according to traditional financial wisdom. It’s already taken one huge tumble and it’s entirely possible it will completely tank one day.

It’s Your Fault If You’re Not a Millionaire in 10 Years

This sounds like a something a kid would say. But you’ve got to remember the kid who said it is actually a millionaire.

Now, not all of us get $1000 as birthday money. But many people in the Millennial generation have at least that much in savings. What would happen if they all invested in crypto?

Now that’s a thought to chew on. If you want more investment and entrepreneurial news, check out the rest of Shoemoney.com.


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The perfect is the enemy of the good ~ Get Rich Slowly

I’m home! Over the past two weeks, I drove 1625 miles across across seven southeastern states. I had a blast hanging out with readers, friends, and colleagues. Plus, it was fun to explore some parts of the country that Kim and I skipped during our RV trip a few years ago. Most fun of all, though, was talking to dozens of different people about money.

After two weeks of money talk, I have a lot to think about. I was struck, for instance, by how many people are paralyzed by the need to make perfect decisions. They’re afraid of making mistakes with their money, so instead of moving forward, they freeze — like a deer in headlights.

It might seem strange to claim that the pursuit of perfection prevents people from achieving their financial aims, but it’s true. Long-time readers know that this is a key part of my financial philosophy: The perfect is the enemy of the good.

Here, for instance, is a typical reader email:

Thirty-plus years ago I was making much less money than when I retired so my tax rate was lower. I sometimes wonder now if it would have been better to pay the taxes at the time I earned the money and invest and pay taxes all along rather than deferring the taxes. You can make yourself crazy thinking about stuff like that!

Yes, you can make yourself crazy thinking about stuff like that. This reader retired early and has zero debt. They’re in great financial shape. Yet they’re fretting over the fact that tax-deferred investments might not have been the optimal choice back in 1986.

Regret is one of the perils of perfectionism. There are others. Let’s look at why so many smart people find themselves fighting the urge to be perfect.

Maximizers and Satisficers

For a long time, I was a perfectionist. When I had to make a decision, I only wanted to choose the best. At the same time, I was a deeply unhappy man who never got anything done. Although I didn’t realize it at the time, the pursuit of perfection was the root of my problems.

In 2005, I read The Paradox of Choice by Barry Schwartz. This fascinating book explores how a culture of abundance actually robs us of satisfaction. We believe more options will make us happier, but the increased choice actually has the opposite effect. Especially for perfectionists.

Schwartz divides the world into two types of people: maximizers and satisficers. Here’s how he describes the difference:

Choosing wisely begins with developing a clear understanding of your goals. And the first choice you must make is between the goal of choosing the absolute best and choosing something that is good enough. If you seek and accept only the best, you are a maximizer…Maximizers need to be assured that every purchase or decision was the best that could be made.

In other words, maximizers are perfectionists.

“The alternative to maximizing is to be a satisficer,” writes Schwartz. “To satisfice is to settle for something that is good enough and not worry about the possibility that there might be something better.

To maximizers, this sounds like heresy. Settle for good enough? “Good enough seldom is!” proclaims the perfectionist. To her, the satisficer seems to lack standards. But that’s not true.

A satisficer does have standards, and they’re often clearly defined. The difference is that a satisficer is content with excellent while a maximizer is on a quest for perfect.

And here’s the interesting thing: All of this maximizing in pursuit of perfection actually leads to less satisfaction and happiness, not more. Here’s what Schwartz says about his research:

People with high maximization [tendencies] experienced less satisfaction with life, were less optimistic, and were more depressed than people with low maximization [tendencies]…Maximizers are much more susceptible than satisficers to all forms of regret.

Schwartz is careful to note that being a maximizer is correlated with unhappiness; there’s no evidence of a causal relationship. Still, it seems safe to assume that there is a connection.

I’ve seen it in my own life.

Maximizing in Real Life

The Paradox of ChoiceFor a long, long time, I was a maximizer. When I had to make any sort of decision, I researched the hell out of it. I wanted to buy and do and have only the best. But you know what? No matter how much time I put into picking the perfect product, it always fell short of my expectations. That’s because there’s no such thing as a perfect product.

In the olden days, for instance, if I needed to buy a dishwasher, I would make an elaborate spreadsheet to collate all of my options. I’d then consult the latest Consumer Reports buying guide, check Amazon reviews, and search for other resources to help guide my decision. I’d enter all of the data into my spreadsheet, then try to find the best option.

The trouble? There was rarely one best option for any choice I was trying to make. One dishwasher might use less energy while another produced cleaner dishes. This dishwasher might have special wine holders while that had the highest reliability scores. How was I supposed to find the perfect machine? Why couldn’t one manufacturer combine everything into one Super Dishwasher?

It was an impossible quest, and I know that now.

Nowadays, I’m mostly able to ignore my maximizing tendencies. I’ve taught myself to be a satisficer. When I had to replace my dead dishwasher three years ago, I didn’t aim for perfection. Instead, I made a plan and stuck to it.

  • First, I set a budget. Because it would cost about $700 to repair our old dishwasher, I allowed myself that much for a new appliance.
  • Next, I picked one store and shopped from its universe of available dishwashers.
  • After that, I limited myself to only a handful of brands, the ones whose quality I trusted most.
  • Finally, I gave myself a time limit. Instead of spending days trying to find the Best Dishwasher Ever, I allocated a couple of hours on a weekend afternoon to find an acceptable model.

Armed with my Consumer Reports buying guide (and my phone so that I could look stuff up online), I marched into the local Sears outlet center. In less than an hour, I had narrowed my options from thirty dishwashers to three. With Kim’s help, I picked a winner.

The process was quick and easy. The dishwasher has served us well for the past three years, and I’ve had zero buyer’s remorse.

A Trivial Example
At Camp FI in January, one of the attendees explained that he’s found freedom through letting go of trivial decisions. For things that won’t have a lasting impact on his life, he doesn’t belabor his options. Instead, he makes a quick decision and moves on.

In restaurants, for instance, he doesn’t look at every item on the menu. He doesn’t try to optimize his order. Instead, he makes a quick pass through the list, then picks the first thing that catches his eye. “It sounds silly,” he told me, “but doing this makes a huge difference to my happiness.”

For the past four months, I’ve been trying this technique. You know what? It works! I now make menu choices in seconds rather than minutes, and my dining experience is better because of it. This is a trivial example, I know, but it’s also illustrative of the point I’m trying to make.

Perfect Procrastinators

Studies have shown that perfectionists are more likely to have physical and mental problems than those who are open-minded and flexible. There’s another drawback to the pursuit of perfect: It costs time — and lots of it. To find the best option, whether it’s the top dishwasher or the ideal index fund, can take days or weeks or months. (And sometimes it’s an impossible mission.)

The pursuit of perfection is an exercise in diminishing returns:

  • A bit of initial research is usually enough to glean the basics needed to make a smart decision.
  • A little additional research is enough to help you separate the wheat from the chaff.
  • A moderate amount of time brings you to the point where you can make an informed decision and obtain quality results.
  • Theoretically, if you had unlimited time, you might find the perfect option.

The more time you spend on research, the better your results are likely to be. But each unit of time you spend in search of higher quality offers less reward than the unit of time before.

Quality vs. Time

Quality is important. You should absolutely take time to research your investment and buying decisions. But remember that perfect is a moving target, one that’s almost impossible to hit. It’s usually better to shoot for “good enough” today than to aim for a perfect decision next week.

Procrastination is one common consequence of pursuing perfection: You can come up with all sorts of reasons to put off establishing an emergency fund, to put off cutting up your credit cards, to put off starting a retirement account. But most of the time, your best choice is to start now.

Who cares if you don’t find the best interest rate? Who cares if you don’t find the best mutual fund? You’ve found some good ones, right? Pick one. Get in the game. Just start. Starting plays a greater role in your success than any other factor. There will always be time to optimize in the future.

When you spend so much time looking for the “best” choice that you never actually do anything, you’re sabotaging yourself. The perfect is the enemy of the good.

Final Thoughts

If your quest for the best is making you unhappy, then it’s hurting rather than helping. If your desire to get things exactly right is preventing you from taking any sort of positive action, then you’re better off settling for “good enough”. If you experience regret because you didn’t make an optimal choice in the past, force yourself to look at the sunny side of your decision.

  • Train yourself to be a satisficer. Ask yourself what “good enough” would mean each time you’re faced with a decision. What would it mean to accept that instead of perfection?
  • If you must pursue perfection, focus on the big stuff first. I get a lot of email from readers who fall into the optimization trap. They spend too much time and energy perfecting small, unimportant things — newspaper subscriptions, online savings accounts, etc. — instead of the things that matter most, such as housing and transportation costs. Fix the broken things first, then optimize the big stuff. After all of that is done, then it makes sense to get the small things perfect.
  • Practice refinement. Start with “good enough”, then make incremental improvements over time. Say you’re looking for a new credit card. Instead of spending hours searching for the best option, find a good option and go with it. Then, in the months and years ahead, keep an eye out for better cards. When you find one you like, make the switch. Make perfection a long-term project.
  • Don’t dwell on the past. If you’ve made mistakes, learn from them and move on. If you’ve made good but imperfect decisions — such as the Money Boss reader who wishes they hadn’t saved so much in tax-deferred accounts — celebrate what you did right instead of dwelling on the minor flaws in the results.
  • Embrace the imperfection. Everyone makes mistakes — even billionaires like Warren Buffett. Don’t let one slip-up drag you down. One key difference between those who succeed and those who don’t is the ability to recover from a setback and keep marching toward a goal. Use failures to learn what not to do next time.

I don’t think perfection is a bad thing. It’s a noble goal. It’s not wrong to want the best for yourself and your family. But I think it’s important to recognize when the pursuit of perfection stands in your way rather than helps you build a better life.

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