One of my overall goals for 2012 is to make this site more of a permanent resource for information. As part of this, I want to create an “Expense Reduction Guide” that will provide an organized way to find ways to maximize personal value and make your spending efficient.
I would like this to be similar to my Favorite Posts on Investing page and Our First-Time Homebuying Experience guides (which also need to be cleaned up…).
Expense #1 – Housing
I am going to go through all the major categories, but let’s start with the biggest expense – housing. I’m keeping this part to ways to reduce either rent or mortgage PITI (principal, interest, taxes, and insurance). Things like reducing heating bills or furniture costs will be kept separate for later.
Move to a different city/state/location
– Ideas for relocation: Roundup of Top 10 Lists
– What cities are people actually moving to?
– international living (working or retired)
Renting
– Rent comparison sites
– rent vs buy calculators
– buying a house for psychological benefit vs. financial
Move to a different house
– live in a smaller house
– neighborhood, location
– shared living, multigenerational living
– multiple units
Buying a house
– Getting a mortgage loan
– Credit scores, income, points, etc
Refinancing mortgages
– Rate comparison
– Mortgage types (fixed, ARM, length)
– Maximizing home appraisal
Homeowners Insurance
– Shopping for homeowner’s insurance
– Deductibles, options
– Renter’s insurance
Property Taxes
– Appealing assessment value
– Special rules in certain states
I’m just starting out and I know I’ll need to write several new posts to fill in the gaps. However, I want to make this an open brainstorming post so that you the reader can make sure I don’t forget anything. Got something to add? Please leave a comment with a tip, a link, or an idea to explore further.
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How about improving the energy efficiency of your home as one way to save in the long run.
You should include your posts on 401(k) loans as a possible source a low interest loan for housing. We did this when we moved and used that money to bridge between buying our second home and waiting on our first one to sell. I know it’s really risky and having two mortgage payments and bills is no fun, but the 401(k) loan was the cheapest option to allow us to make our move with as little disruption as possible since our daughter was less than 1 year old.
Also, I think you’ve had some nice posts about making extra payments versus the bi-weekly plans some people try to sell you on. Another topic would be pricing what you can afford, I always hear buy as much house as you can afford right then, typically around 3 or 4 times your annual salary. Both of our houses have been 1.5x only my salary, so it worked very well when my wife quit working to raise our daughter.
I don’t know if this fits in the category of reducing heating/furniture costs, but I would also explore the direct effect housing choice has on other expenses, particularly commuting. You could pay a little more in rent/mortgage to live near work, but be better off overall because you could take public transportation (perhaps getting rid of a car) or spend a lot less in gas, maintenance and insurance (if you still need a car but drive a lot less).
I have been doing a lot of what you suggest and recently did a reworking of our budget for the year. I believe that one of the best moves I made was to switch to solar water heating. Of course this may depend on where you live and what sort of incentives are available to you and what sort of system you have now. For me I had electric, live in FL and FPL was offering a $1k rebate plus the 30% federal credit is out there. The system was about $4500 – $1k – 30% so $2450 or so. I sold my old electric unit on craigslist for $250. Changing to solar has knocked about $90 off my monthly energy bill plus the hot water is hotter than any I have ever had. The clothes and dish washer function much better as well.
This isn’t specific to the topic of housing, but more the “permanent resource” aspect. Sometimes I see people with questions that go unanswered in the comments – have you thought about starting a message forum? You could maintain your site visit numbers and allow other users to generate content and manage it (moderators), while at the same time readers could help each other out.
What about Homeowners’ Association Dues/Fees
An expense of housing is the difference between what you paid for the house and what you sell it for. The difference always used to be positive, but today it is more likely to be negative.
One way to reduce the difference or to come out on the positive side is by making remodeling improvement yourself and save the cost of hiring “remodelers” whose work costs a bundle needs to be fixed after they get done with a job.
A positive difference (if possible) reduces your overall expenses of maintaining the house over the period that you lived in it.
Maybe too radical – but my wife and I don’t have a house or an apartment and live in an RV. The effect of living in a very small space is really profound on saving/spending money. We really don’t HAVE to spend less, but we love the idea that we are mindful of our consumption. There are other benefits if you go to my site, but some are flexibility in where you live, and increasingly closer family relationships. Probably sounds corny, but we’re having a ball in our tiny little house on wheels. You even have to be mindful of trash too – we are careful to cut down on that as well.
Rental “suites,’ aka mother-in-law apartments, are very popular where we live. Also, laneway or cottage housing is growing. Many people have independent apartments in their homes or small cottages on their property. They rent these out either to long-term tenants or temporary (one week to a few months). In our area, a nice 1-bedroom suite can rent on a temporary basis for $1000-$1200/month, or maybe $800 to a long-term tenant. Nice mortgage helper, if you can tolerate being a landlord, at least part-time.
So long as you are zoned for it and have very tolerant neighbors.
Avoid PMI insurance by having 20% down payment. Use an IRA NOT 401K for first time home purchase. Invest in a class to learn some basic skill(s) like plumbing, carpentry, etc. and buy a fixer upper.
Echoing Anne’s comments above – keep in mind ALL aspects of your housing costs when buying, not just the apparent ones. 20 years ago when we were looking at buying our current house, we found out the builder was also building houses about 10-15 miles further out for tens of thousands of dollars less. We considered it, for the cost savings, but were hesitant because of the added commute time (which could be considerable – traffic is horrible here). The clincher was when I worked out how much in actual dollars extra we would spend on commuting costs per month, which was much more than the monthly saving on our mortgage payments.
For those young enough in spirit and light enough in possessions, housesitting, or being a “home manager” as it’s sometimes called in the trade, is a great way to live very cheaply or for free.
Basically, it means moving into a “for sale” single family residence that is on the real estate market, taking care of the premises and giving it a “lived-in” look to encourage buyers. In exchange, the homeowner or realtor offers greatly reduced rent until the property is sold. The downside is that home managers must be willing and ready to move on fairly short noticed (depending on escrow terms, it usually is 30-45 days).
See my blog post on this (and a related one) at the link below:
http://blog.redfin.com/losangeles/2008/03/housesitting_on_top_of_the_world.html
Living rent-free with parents. (yeah I know).
Before Jonathan bought a house, one of his goals on this blog were something like “Visit Thailand, Australia, and Argentina” or something like that. As soon as he bought a house those goals disappeared and he started talking about spending his weekends going to home depot and doing home improvement projects.
If you are the type of person that likes spending your free time working on your house and yard then buying is certainly a good way to get value out of doing those things.
If you are like me and hate yardwork and house repairs and would rather spend your time doing other hobbies, then buying a house might not be for you. I think the time investment of owning your home sometimes gets lost in the calculation. Of course you can pay people to do those things, but that needs to get calculated in as well…
Next topic for the Expense Reduction Guide: Healthcare.
As a small business owner, paying for my own health insurance, our healthcare cost for two people runs close to 10k a year. And this is being absolutely healthy and on almost no medications (mainly insurance premium and preventative doctor/dentist visits). Now this is getting close to $1000 per month, which will pretty soon far surpass my housing cost…… I am not interested in “don’t get insurance”, because you go bankrupt if you get a major illness or accident.
Housing costs is not the biggest expense for quite some people in this country.
@Derek – I am not disagreeing with your point, but in the past few years I have visited Thailand (awesome), Peru instead of Argentina (had to see Macchu Picchu), and Switzerland (instead of Australia). So those goals were pretty much met, but I replaced them here because they weren’t really financially related. Fun is important.
I do also spend a lot of time at Home Depot and working on the house, although most of that is done now thanks goodness 🙂
Making sure to buy a home that is not in a federal flood hazard area is a great way to keep the recurring costs of home ownership down. If you’re in a designated high-risk flood area, you’ll have to pay flood insurance premiums every year for as long as you have a mortgage. The premiums could cost you $1,000 a year even with the minimum required coverage.
A great way to save money on your home/rental is to compare home insurance/rental insurance. There are tons of companies wanting your business. I think people would be surprised at some of the rates they can get.
I’ve been experimenting with buying discounted gift cards online and using them to defray my Home Depot expenses. I’m combining Home Depot coupons with discounted gift cards to get 18% savings.
I’m learning that cash isn’t king after all.