Save Money On Housing: Live Well In Less Space

Posted on February 13, 2012 // 72 Comments
image credit: governing.typepad.com

Speaking of internal frugality, I’d say one of the most basic ways to save on rent or mortgage payments is to… live in a smaller place. No, wait, really. Let’s think about it.

Even though it’s now easy to make fun of 10,000 square feet McMansions, they are only a side effect of an overall trend towards larger houses. According to this 2006 NPR article, the size of new houses has more than doubled since the 1950s. The average new home sold in 2007 was a whopping 2,629 square feet.

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I know we’re getting fatter and need a bit more space to move around, but not by that much! In fact, the average family size has actually been decreasing over time. Here are some stats I pulled from the U.S. Census:

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Source: U.S. Census Bureau

From 1970 to 2004, the average household shrunk by 27%, but the average square footage grew by 66%. Using median numbers gave similar results.

There are several theories as to why this is happening. For starters, we may simply want a higher standard of living. (Sharing bathrooms? That’s for people in 3rd-world countries!) Perhaps it’s from us continually one-upping our neighbors. Maybe builders are pushing bigger homes through marketing. Or it may be a result of the breaking up of the American family, and how we don’t like spending time together anymore.

Most importantly, we don’t need the extra space. If a family of four could live well in 1,500 square feet back in 1950, there is no real reason they can’t do so today. It’s just a choice like any other, and we have to examine whether it is really worth the price. In cities like New York, Tokyo, or Hong Kong where space is at a great premium, families have long adapted to much smaller living spaces.

Finally, the extra costs don’t stop with the bigger sticker price. There’s the higher property taxes and insurance rates. A bigger home costs more to heat, cool, maintain, and repair. More rooms means more furniture, more wall decorations, more room for clothes, and just more stuff in general. More appliances mean more electricity used. The list goes on and on.

In my opinion, many people don’t even notice that they are stretching to buy homes that just keep getting bigger and bigger. They just follow the crowd. It’s hard to be different. This unconscious choice may partially explain why many of us feel so much more stressed financially than our parents.

Update: After the housing bust, there has been a growing counter-culture celebrating living well in smaller places. There is even the extreme end of buying tiny houses and the small house movement. We may not need to all live in 300 sf houses, but it’s good to explore our options.

This post has been added to my Expense Reduction Guide: Housing.

Filed Under: Frugal Living, Real Estate //

Best Places To Live? Big Roundup of Major Top 10 Lists

Posted on February 10, 2012 // 21 Comments

Where are the best places to consider relocating to? I knew that almost every major financial media outlet had their own “best places to live” list, and my plan was to see which cities popped up most amongst them. Well, that was a bust as every list seemed to be so different; The top city on one list might not even be on the next list at all. Why? There is no one best place to live, it all depends on what criteria is important to you.

Instead, I’m just going to give you the direct links to all the major Top 10 lists (alphabetical-ish), and let you peruse at your leisure over the weekend. I listed the top city pick for each one – all in different spots across America!

Let me know if I missed one, but be careful since many other smaller lists are actually based on those above. In the end, choosing where to live is just one factor in your life, and you may already be happiest where you are right now. But why not make sure it’s a conscious decision? A good place for additional research is BestPlaces.net which I believe used to work with CNN Money on their list.

This post is part of my Expense Reduction Guide: Housing.

Filed Under: Frugal Living, Real Estate //

Moved For Financial Reasons? Share Your Story.

Posted on February 8, 2012 // 27 Comments

Have you moved for financial reasons?

Where did you move to? Where did you move from? How did you decide?

Larger income? Better job for similar income? Lower housing costs? Something else?

Share your story in the comments below!

I don’t think there will be as many as the 358 replies to my six-figure salary stories request, but I’m sure reading your case studies would be very interesting.

Filed Under: Frugal Living //

What Cities Are People Moving To For Financial Reasons?

Posted on February 8, 2012 // 35 Comments

This post has been revised with new info and added to my Expense Reduction Guide: Housing.

Although it takes considerable effort, nearly 40 million Americans move every year. Now, the reasons for all these moves are not all financial, but you can improve your financial situation drastically by moving. You might increase your income, decrease your housing costs, or decrease your tax bill.

Where are people moving to? This Forbes article analyzed address data from IRS tax filings, and found that a trend that households are moving to warmer climates with lower taxes and property values. The majority of the top ten counties are in Texas and Florida, where there is no state income tax.

After accounting for property taxes, Shrum’s analysis shows that Texas has the fourth-lowest personal tax burden in the country, and Florida has the eighth lowest.

They also compiled an interactive map which shows relative inflows and outflows for each county. (Previous year’s version here). It’s pretty fun to click around to where you live, and where you might consider moving to.

Below is the map for Travis County, TX, where Austin is the major population center. A blue line between two counties mean that more people migrated to Austin than left, and a red line means that more people left Austin for that county than came in.

Where are people leaving? Places with high tax rates.

Shrum also points to eight states that have targeted wealthy households with extra-high tax brackets: California, New Jersey, New York, Maryland, Hawaii, Oregon, Connecticut and Wisconsin. Six of the top 10 counties the rich are fleeing are located in those states.

Personal case study. My sister used to live in San Francisco, California. She recently moved to Austin, Texas where her income increased and her housing costs decreased at the same time. Texas has no state income tax but relatively high property taxes. But since she rents in both places, the lack of state income tax becomes yet another boost to her bottom line. I should note that we both lived there for a while as children, so there is some familiarity, but she left in elementary school. From the looks of it, she wasn’t alone!

Filed Under: Frugal Living, Taxes //

How To Reduce Housing Expenses – Brainstorming / Request Ideas

Posted on February 6, 2012 // 20 Comments

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.

Filed Under: Budgeting, Frugal Living, Real Estate //

Exploring the Connections Between Happiness, Stuff, and Money

Posted on January 24, 2012 // 10 Comments

The Daily Beast has an article Consumption Makes Us Sad? Science Says We Can Be Happy With Less by Barry Schwartz (author of The Paradox of Choice) that serves as a nice compilation of various psychological and behavioral economics findings about money and happiness.

The first main topic is hedonic adaption. When things are awesome, we eventually get used to it (celebrities, lottery winners). When things are really awful, we tend to get used to that as well (disabled persons). This is why it’s hard for people to achieve a constantly higher level of happiness. We get a nicer car/house/toy, we get used it, and then soon we want an even nicer car/house/toy, never getting anywhere as if we are walking on a treadmill.

Simply knowing that the good feeling from that purchase is only temporary may help you cut back on your spending. In addition, author Dan Ariely suggests you deal with the hedonic treadmill by pacing yourself when it comes to experiencing pleasure, and (when needed) making painful cuts all at once. For example, you might not buy a entire home theater setup all at once, but perhaps upgrade one component and wait until the shine completely wears off before buying a new couch. If you need to cut costs, it may be better to make a big spending cut by downsizing your house rather than cutting things you’ll miss repeatedly like your daily coffee or selling your stuff on eBay piece-by-piece.

The second main topic is how most of us get more pleasure out of doing stuff than out of having stuff. This especially applies to activities with other people and/or activities that we find important and worthwhile. A nice result form this is that those activities often cost very little or nothing. I think this concept is related to the research by Daniel Kahneman that found that happiness did not increase past earning $60,000 a year.

Below 60,000 dollars a year, people are unhappy, and they get progressively unhappier the poorer they get. Above that, we get an absolutely flat line. I mean I’ve rarely seen lines so flat. […] Clearly money does not buy you experiential happiness, but lack of money certainly buys you misery,” he said. But the real trick, Kahneman said, is to spend time with people you like.

We all need a certain amount of “stuff” (and thus money) to make us feel physically healthy and safe from harm. Past that, adding more stuff doesn’t seem to help. Schwartz suggests that at some point, one might even stop looking for a job that pays more, but instead go for a job that makes us feel valued and doing something important. Of course, more money can get you to early retirement faster if you’re into that sort of thing, so there is a balance to be made.

Filed Under: Career, Frugal Living //

Sprint Family Plan Discount Change, Cancel Without Penalty

Posted on January 23, 2012 // 8 Comments

If you are on a family plan with Sprint service and also have a student or employee cellular discount applied to it, this is a quick heads-up that Sprint is raising your bill. If you look carefully on your January statement, you should find this announcement:

Discount Policy Change Notice
Effective your February bill cycle, Family and Business Share monthly plan charges will be billed differently. Discounts will only apply to the monthly recurring charge of the primary line. Line 2 will be billed at the applicable Add-a-Phone rate and will not be discount eligible.

Previously, the discounts applied to first two lines, but now it only applies to the first line. (What if both users qualified for discounts?) SprintFeed has an earlier leaked memo with example. In addition, this SprintUsers post (by an actual Sprint employee) reports that this indeed constitutes a material change to the contract, and thus gives you the ability to cancel your contract before the end date without having to pay an early termination fee (ETF). However, you must actually end your contract, as opposed to simply switching to a month-to-month basis. You’ll probably have to escalate your call to the Sprint retention department, and they may offer you some sort of incentive to stay on your plan.

Filed Under: Frugal Living //

Do I Have An Obsession With Early Retirement?

Posted on January 19, 2012 // 36 Comments

After my post counting down my years until early retirement earlier this week, I received a very thoughtful e-mail from reader Tim:

I’ve been reading and enjoying your blog for a long time, and think it’s one of the best out there for your mix of personality, short-term and long-term financial tips and advice. But one thing bothers me: the ongoing, almost central theme (obsession?) with early retirement. It seems to be the goal around which everything else in the blog revolves and leads toward.

Why is that? Do you hate your job so much, and can’t even imagine a job you would enjoy enough that you would want to do it whether you were paid or not? It doesn’t strike me that someone as industrious, curious and intellectually active as yourself would really ever retire. I understand there may be other activities you’d like to pursue, but my guess is that most of them would be potentially income-generating. So you’d still have a “job.” And if that’s the case, then why not pursue one or more of those things now, rather than delaying them until “retirement?”

It seems to me that “MyMoneyBlog” is likely one of those things, and I’m very glad you’re doing it. And if one reason is the hope to fully monetize the blog to the point of retirement from your nine-to-five job, then I hope you do that too.

But still, something about that recurrent theme of retiring just leaves me with a hollow, dead feeling in the pit of my stomach, as if we’re all inmates marking time on the wall of a dreary prison cell until our release. Maybe it’s the implied resignation to the assumption that joyless jobs are unavoidable – a bitter fact of life – that I reject. I just don’t like to think that as a society we accept a lifetime of delayed gratification as a given, and don’t rouse ourselves to do anything more about it than make sound financial plans to enjoy ourselves when the pain finally stops.

There are some great questions in there, and really it also showed me that I can improve on explaining my philosophies. I have all these ideas rattling around in my head, and not all of them reach the keyboard. My reply became rather long…

Definition of early retirement. I know that retirement is a very tricky word to use. For too many people, it conjures up images of playing golf and sitting around all day. Financial independence or financial freedom are better terms, and they all mean the same thing to me – I get to do whatever I want. Cook a new dish every day, rebuild a Land Rover Defender or Willys Jeep, volunteer, spend a year abroad, anything. F— You money.

Delayed gratification. Going back to the early retirement curve, a major assumption is that your current expenses are the same as your future expenses. Let’s say your household earns $80k and lives on $40k. Well, that curve assumes you’ll be living on $40k in “retirement” as well. Using a food analogy, getting there is not a crash diet, but requires a permanent change to healthier eating habits. I don’t feel deprived with my current lifestyle as it pertains to spending, otherwise it wouldn’t be sustainable.

A job that I would do forever? I’ve thought about this. Let’s try to design the best job possible. To start, it should satisfy this Career Venn diagram which reminds us to seek the intersection of things that we do well, things that pay well, and things we like to do. In addition, it should provide all the factors that make a job satisfying beyond money: autonomy, complexity, and a connection between effort and reward.

Does my current job cause me pain? Does my wife’s job? Not really, we are white-collar professionals so we have a certain degree of autonomy and challenge to our work. But we also have managers, meetings, clients, and politics.

Is there any such ideal job that exists? Honestly, if it had to pay $50k a year and 40 hours a week, probably not for me. I am the type of person that likes to do something for a while, and then move on to something else. Even self-employment has it’s own set of restrictions. Even though blogging is a sweet gig :), having income that depends on advertising is very volatile.

This is where financial freedom comes in, because it means more flexibility. I have realized over time that I will probably need to do something, and that is a big reason why I am happy with a 4% safe withdrawal rate. All the academic studies that calculate this withdrawal rate stuff assume that a theoretical person blindly takes out 4% inflation-adjusted to the CPI every single year. From reading experiences of real early retirees, they adjust and adapt.

Let’s say we want that 4% withdrawal rate to create $40,000 of income from investments, but it ends up that 3% is a more reasonable number. Now, I need to find a job that pays $10,000 a year. I could do all kinds of things that would be kind of cool for $10,000 a year, and I wouldn’t have to work 40 hours a week either. I could do just about anything – web design, tutor high school or college students, teach English in a foreign country, apprentice with a skilled craftsman, or work as a travel guide.

Indeed, the possibilities are endless. One day, if the stars align, we will have children. At that point, we plan on downshifting to working part-time so that we can both enjoy raising kids without all the financial stress that our parents had. Our portfolio can already cover half of our expenses. Once the kids go to school, there will be more time for work, if needed. In the end, I would say that I am obsessed with freedom and autonomy.

Filed Under: Frugal Living, Retirement, Simple Living //

TeamViewer: Great Free App For Controlling Parents’ Computer Remotely

Posted on January 18, 2012 // 20 Comments

If you’re the person in your family or circle of friends that always seems to be asked computer questions, or are simply the person asking for help, what you really need is software that allows remote access between computers. That way, you can diagnose and fix problems from across the country without having to leave your desk.

I’ve tried a few different apps, but finally stumbled across an app called TeamViewer. The setup is easy, and works without having to mess with firewalls or router settings. You simply download the application on both computers, and then swap the provided access codes in order to let someone else control your computer. As long as the person you’re helping can download a file off the internet, you’re good to go. Now, I can control the mouse on my parent’s computer and see exactly what they are seeing on their screens. You can also use it to transfer large files directly between computers.

It works for Windows, Mac, Linux, and there are even iPhone and Android apps. It got 5 out of 5 stars from CNET Editors, and 4.5 out of 5 per user reviews. Best of all, it is completely free for non-commercial use. This program has already saved me hours of time, without having to provide a credit card or deal with time limits or 30-day trials. I just wish I found it sooner.

Filed Under: Frugal Living //

How Many Years Until You Can Reach Early Retirement?

Posted on January 17, 2012 // 14 Comments

One of the recurring themes of personal finance is that while the concepts are often simple, execution can be quite difficult. A couple of excellent posts from Mr. Money Mustache and The Military Guide (both also mention the Early Retirement Extreme book) provide another example when answering the question “How many years until I can retire?”

Let me summarize. A simple definition of financial independence is creating enough income from your investments to pay for your expenses. Assuming a “safe” withdrawal rate of 4%, this means your portfolio must be 25 times your expenses. So if you spend $30,000 a year, you’ll need $750,000. (If you want “safer” withdrawal rate of 3%, that increases it 33 times expenses.)

Given the rough assumptions of starting with nothing and earning a 5% inflation-adjusted (real) return on investments every year, you can simplify things even further. (5% real return looks plausible based on the past, but I know it’s harder to see it now.) It works out that the only thing that matters is your personal savings rate:

After-tax numbers work better since expenses are usually after-tax. MMM provides a table, which I in turn converted into a single curve:

Notes:

  • The harsh truth is that if you want to retire before Social Security steps in, you’re going to have to save a lot more than 10%.
  • The curve is steepest at lower savings rates. That means increasing your savings rate from 10% to 20% shaves off more time working (14 years!!!) than increasing from 20% to 30% (still 8 years!), and so on.
  • Retiring in 20 years requires roughly a 40% saving rate. Retiring in 10 years requires a 65% savings rate.

If you’re new to the financial independence community, the idea of saving 40% or more of your income may be incomprehensible. Hopefully you will realize that it is possible, if you wish to pursue it. I have come to the conclusion that some people will happily work for 30 years in exchange for the ability to drive a new BMW every 3 years. Others (gasp!) just like their jobs that much. All that’s fine as long as that’s a conscious decision.

To increase your saving rate, you must either increase income or decrease expenses. While decreasing expenses is actually the more accessible option for most families, it will likely remain unpopular forever. That doesn’t mean you can’t do it, because many people are quietly doing exactly that. Try – you may surprise yourself.

I am also a strong proponent of increasing income. In the end, in our household we did a combination. Both of us earn an solid income after a combination of tuition-based postgraduate education and “DIY education”, but we only live on the lower income. Armed with a 60%+ saving rate, we are on track to achieve financial freedom according to this definition within another 5 years, although we may take a different path by working part-time for a longer period.

I must admit, even though I have known this “truth” for many years, I don’t actively talk about it because we do earn much higher incomes than average. However, that doesn’t change how the numbers work. I applaud all those bloggers and journalists that don’t patronize you and push the idea of higher savings rates, like this article in The Atlantic by Megan McArdle:

If you’re like, well, almost everybody, you’re not saving enough. 15% of each paycheck into the 401(k) is the bare minimum you can get away with, not some aspirational level you can maybe hope to hit someday when you don’t have all these problems.

I mean, obviously if one out of two workers in your household just lost their job, or has been stricken with some horrid cancer requiring all sorts of ancillary expenses, then it’s okay to cut back on the retirement savings for a bit. But let’s be honest: that doesn’t describe most of us in those years when we don’t save enough.

Filed Under: Frugal Living, Retirement //

Selling Unwanted Gift Cards For Cash: Price Comparison

Posted on January 11, 2012 // 43 Comments

Updated with current price quotes for 2012!

Now, I always love every gift card that I get… 😉 but what if you’re trying to simplify your life and wanted to convert your Overpriced.com gift card to good ole’ fungible cash?

Well, the “old-fashioned” way was to sell them on eBay. A couple years ago, I tested out eBay and found estimated eBay cash-out ratios after eBay auction costs and Paypal transaction fees ranged from 81% for Gap gift cards to 90% for Amazon gift certificates. However, the eBay route adds in hassle and potential for fraud. What if some buyer from across the country says your card arrived empty?

A bunch of new websites have popped up that (1) provide upfront quotes for your gift cards, (2) provide a prepaid mailer to send in your cards, and (3) send you a check. The most popular ones appear to be Cardpool, PlasticJungle.com, GiftCards.com, and GiftCardRescue. Many of these go even further and offer things like online redemption using the codes on the back of the certain cards, and instant payouts via PayPal or via Amazon.com gift certificates.

However, I just wanted to run a simple comparison of what different card-buying websites would offer in straight-up cash for a $100 gift card at various retailers. I’m ignoring any swap-style sites, and also sites like CardWoo that make you mail in the card first without any upfront pricing quotes (why would I do that? sounds like an awful idea). Here are the results, updated for 2012:

Gift Card Website Comparison ($100 Face Value, Updated 2012)

 


Cardpool
Plastic Jungle

 
GiftCards.com
GiftCardRescue
$92 $92 $91 $85
$83 $83 $86 $80
$83 $83 $83 $72
$75 $75 $72 $70

Results

When I first ran this comparison in December 2011, the website that offered the highest prices, on average, was GiftCards.com. However, as of January 2012 the overall winners are Cardpool and PlasticJungle. In either case, none of them had the highest prices across the board so if you can spare the time, trying each of the sites out may earn you a few more bucks. In the end, I would say that these sites do provide a useful service, as the payouts are often even better than what you could net after fees by selling directly on eBay.

The cards to stores that have the broadest appeal like Target and Home Depot have the best cash-out ratios. Something to think about next time you want to buy your buddy a gift card from StuffedMooseHeadsOnly.com.

I found it interesting that none of the sites wanted to buy an Amazon.com gift certificate from me, as they historically have a very high resale value. I’m guessing that Amazon forbids this somehow, or perhaps you can’t check the balance without adding it to a user’s account?

Filed Under: Frugal Living, Simple Living //

WSJ on Lowering Your Cable Internet Bill Through Negotiation

Posted on January 3, 2012 // 17 Comments

Looking for some financial improvements in the New Year? Why not get rid or lower a monthly expense that you don’t need? Do the yard yourself – it’s good exercise too! Sell that extra car (and the insurance payment with it)? Or trim that ever-growing cable bill? It appears the Wall Street Journal has caught onto what many people (including me) have been doing for years with it’s article Customers Say to Cable Firms, ‘Let’s Make a Deal’.

Want cheaper cable television? Try asking for it. Every three to six months, when his most recent promotional deal expires, Carey Anthony blocks out an hour of his day to negotiate with his cable company. Each time, the president of a software company in Los Angeles says he can knock $20 to $30 off his monthly bill. “Negotiating works every time,” says Mr. Anthony, 46, who estimates he has saved more than $350 a year over the past decade. “Sometimes you have to threaten to cancel service, or switch to another provider, or sit on hold for an hour, but I’ve never failed to get a discount,” he says. “You just have to be diligent.”

This sounds just like my own experiences in cable bill and internet haggling since 2005 with updates from Comcast (2007) and DirecTV (2009). Similar to Mr. Anthony, I’m probably ahead hundreds of dollars using this tactic, although I’ve moved around a bunch and thus taken advantage of new-customer perks as well.

In behavioral finance terms, what Comcast and other businesses are doing is called price targeting. If Jane is willing to pay $50 a month and Jill is willing to pay only $30 a month for my product that only costs me $15 a month – I would love to have both Jane and Jill paying me whatever they are willing. But if Jane finds out I’m offering Jill the same thing for $20 a month less, she’ll get mad even though she was fine without that knowledge. So, Comcast waits until Jill complains and offers her the $30 a month plan quietly:

Many providers offer less-expensive packages with fewer channels but don’t advertise them widely. Providers often will allow customers to continue cost-saving promotions well after they expire. Other providers will cut you a new deal every six months—but you have to call and ask. Often, if customers threaten to cancel service, they are transferred to the “retention department” staffed with representatives who are trained to offer customers deals to stay put.

Now, some people are offended by these tactics. I suppose that is partially cultural; in many countries such negotiations and haggling are a part of daily life. Price tags (and thus common prices for all) were an invention of the chain store as it grew from small shops.

Filed Under: Frugal Living, Funny //
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