Housing Costs are our Biggest Obstacle to Financial Freedom
Maybe Im over simplifying, but over the past month my wife and I have started to recognize that the primary thing that stands in our way to financial freedom is housing costs.
If we step back, the single biggest expense going forward that we have control over that will define our success in achieving financial freedom is minimizing the amount of money we spend every month putting a roof over our head.
This is tough for us to accept. Lets face it, everyone tells you "your home is your biggest asset", "buy the biggest home you can afford", "they don't make anymore real estate". The general thinking being that your home is a good investment and the more you buy, the better off you will be.
The lure of a home being a good investment and thinking about everything we have envisioned for ourselves and our home makes figuring our what our budget and price range will be for our new home all the more difficult.
On the other hand, a bigger home means larger mortgage payments, more taxes, high utility costs, more expenses to furnish and maintain, and more of a "keeping up with the Jones" mentality.
My wife and I have established that these characteristics are what we value in a home (so far):
- good schools
- Newer neighborhood to help build social ties to community
- short work commute times
- wooded lot
- larger lot (.5+ acres)
- roomy kitchen
- 3 bedrooms + office
- workshop area such as a garage or shed, or opportunity to create such an area
We have also discussed our price range. I believe that our home should cost us somewhere in the range of $250k. In my opinion that is what we can reasonably afford and still comfortably meet our long term financial goals.
- $250k would be about 10% of our target net worth -- a pretty sizable chunk of what we feel we need long term. This means 10% of our net worth would be "dead to us" - we wouldn't be able to earn any return on this money to support us in the future - hence we need to keep this to a reasonable level. Also I found that wealthy people own less home than you think.
- My wife wants to stay home to raise our kids in the future. Our ability to do this is greatly dependent on whether we can establish a manageable monthly cash flow on one income. If we financed about $180k, a rough PITI estimate would be ~$1,200/mo. This monthly housing cost would be more manageable for us on one income vs ~$2,000+/mo.
- My job is unpredictable going forward. I feel uncomfortable in my current job and I don't have good visibility to the future. I could get laid off or quit in frustration, eliminating the majority of our existing income.
So we kind of know what we would like, but in reality it doesn't all match up. We can't simply find what we are looking for in the price range we are thinking we want to spend. I think some tough choices lie ahead for us as we have to consider the tradeoffs of getting what we want in our home or meeting our financial objectives.
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