Seeking Ideas Around Reducing Living Expenses

[lifeflow]

Hello, everyone,

I've been loosely following the techniques discussed in the book, Your Money or Your Life, since 1994, not long after I inherited some money from my grandparents. It's been a great help, especially using simple spreadsheets to track my general income and expenses, etc. Later, in 2004, I received money from my late father's estate. Presently, I have been receiving a fixed income of $800/month (earlier, I had received something similar when I had income from CMO's/REMIC funds, that distributed both principal and interest over time).

I live in Portland, OR, and have pretty much lived a simple life, have no long-term debts, no car, no mortgage (I rent) though I do have rent to pay and healthcare insurance. I feel pretty lucky in that compared to most people, I have few financial obligations.

Presently, I have several options around housing choices but they involve trade-offs: 1) co-invest with some partners in a plex housing situation or a large house, 2) purchase a smallish condominium for cash (some of these in the city are fairly expensive), 3) get a fixer/as-is house from a bank (short sale, etc.). While my rental is pretty affordable ($725/month), it seems tempting to buy a home. A nice thing about is the option to rent it out while I'm traveling someplace. I don't have to pay rent anymore. On the other hand: taxes going up, levys, structural/major HVAC problems, etc.

I would love to reduce my costs to where the $800/mo income would cover most of my expenses. I love frugality but that may not be sufficient. Health insurance has been rising but it's something I can't do without (unless I change my deductible).

Ideas and suggestions would be most welcome : )

[flowerseverywhere]

welcome

I suggest that you continue to read and post here. Daily Frugals is a thread where people post little things that they do that save money and reduce expenses so that would be a good start. Although you may already do a lot of things that are suggested (cook at home, garden, line dry clothes etc.) there are always good ideas throw out. Many posters live with no cable tv, no cars etc. There are a lot of people that post from the Pacific Northwest so you have lots of kinship here.
but all over the country, and indeed all over the world there are many people who are realizing that our consumer driven, junk accumulating, I want more societies are not sustainable in the long run.

It is a great help to track all your expenses, many of us here have been doing so for years. It is amazing how the little things add up.

There is another good website to consult, Mister Money Mustache that a lot of people here have posted about. And you will see lots of good websites or blogs mentioned that will give you great ideas and inspiration.

[SteveinMN]

Presently, I have several options around housing choices but they involve trade-offs: 1) co-invest with some partners in a plex housing situation or a large house, 2) purchase a smallish condominium for cash (some of these in the city are fairly expensive), 3) get a fixer/as-is house from a bank (short sale, etc.). While my rental is pretty affordable ($725/month), it seems tempting to buy a home. A nice thing about is the option to rent it out while I'm traveling someplace. I don't have to pay rent anymore. On the other hand: taxes going up, levys, structural/major HVAC problems, etc.
Welcome to SLF!

I guess the first question I have relates to the bolded text in your post. Why is it tempting? What do you hope to get out of home ownership that you do not already have? FWIW, I am a homeowner and have another house that I bought to rent out. I bought the home my wife and I live in because I like the idea of having a place in which you can do what you (reasonably) want: fix it up as nicely as I want it, plant a garden out back (can't do that in a condo), etc. And, until recently, owning real estate also was almost a guaranteed moneymaker. OK, that idea is shot, but we're not underwater or even getting wet, so I can't complain. The other house I bought was purchased with the intent to rent out to my mother, and that has worked out well. She'll be there until she can no longer live alone.

But I have to say that the freedom to do what you want in your own house comes at a price. We are responsible for the ever-increasing real-estate taxes. We need to maintain the capital fund necessary to replace the roof and the refrigerator and to keep the place full of carpet and warm air and to mow the lawn and clear the driveway of snow. Certainly there are less-expensive ways to do many of these things, but you may be surprised at how much more expensive running your own home will be. It would be an interesting exercise to estimate as accurately as you can the expenses of living a year in your own house.

I don't say this to dissuade you from it; just to indicate that, as YMOYL posits, you need to be okay with committing so much of your life to what you're getting in return.

[Rogar]

Welcome, Lifeflow.

In my opinion, buying a house should never be considered from a purely financial standpoint. It is more a philosophy of how you want to live. The positives include the pride of ownership and being king of your castle. The basic negatives are more responsibility and time for maintenance.

I rented for about 20 of my working years and have no regrets. I had a lot more play time. I saved my money while renting and am now a homeowner and the house is now fully paid off. It is a great feeling to know that whatever course life's events take, my basic housing costs are covered. But maintenance chews up time and money. My house was somewhat of a fixer and I would roughly estimate I've averaged putting $4,000 a year into things like new windows and doors, appliances, furnace, AC, concrete, etc. I figure about 2/3 of my interest expense was a hole in the ground where the money goes. Then there's property tax, insurance, and the fact that the housing market has been poor. I enjoy the concept of home ownership so have not run the numbers, but it would might be a wash compared to renting.

[fidgiegirl]

Hi Lifeflow,

Welcome!

If you are willing to post some specific numbers, we'd be more than happy to help crunch them. There is a lot of financial wisdom here!

[Tussiemussies]

Hi and welcome to the board which I think you will really enjoy as there are many dedicated SL's here with many great and creative ideas...

For me home-ownership is the only way to go. It is not about the finances but we have been renting for four years and not one day did I feel comfortable knowing that this house belongs to someone else who could show- up at any time. No garden or clothesline, no painting or doing things to the house as we wish.

We are closing on a home soon and I can already feel the weight lifting off my shoulders... :). I'll pay the money for that level of psychological comfort. We owned homes since we were married and maybe I would feel different if I never experienced that before... :) Christine

[awakenedsoul]

Hi lifeflow,
Welcome! I own a small fixer upper that I bought in 1998 for $89,500. At the time I was renting it for $675.00 a month. The owner sold it to me without a real estate agent. I really enjoy owning a home, but it was a huge adjustment. Property taxers and repairs can be really expensive. My home was built in 1943, and needed some work. Overall, I love it. I'm very into gardening and domestic activities. I've planted an orchard and vegetable garden, painted, put in a new floor in the kitchen, and nice tile in the shower. I plan to replace the 1960's linoleum in the bathroom next year.

Here are some good questions to ask when buying an older home:

How old is the roof?
How old is the hot water heater?
How old is the heater?
Has the house it been repiped? (Mine still has the original galvanized pipes.)
Does the home have the original wiring?
Is there a septic tank?

All of these replacement costs are really high. I plan to repipe my place in the next year or two. The wiring is fine, but if I wanted to sell, it would help to rewire. (The last time it was done was in 1964.) It's also important not to confuse home equity with wealth. You have home insurance, which isn't cheap. I'm looking towards the future, and I like knowing I have a tiny, comfortable, paid off house for my golden years. I'm near the bus, a short bike ride to town, and my utilities are super low.

Oh...one other thing. I would definitely find out about association fees. Those can be tremendously expensive. The restrictions an also be costly, too. (No clotheslines, food gardens, etc...)

[Tammy]

We've done both over the years. We love renting at this point, cause we are in an urban area and the whole city is our backyard. And we have time to enjoy it since one hour a week is all we need for everything related to the care of our dwelling.

[iris lily]

Hello, everyone,



Hello, glad you joined up here!

I think you are smart to rent and to not automatically fall into the idea that owning is better financially. It often is not.

We will own until we are elderly because we have too many pets, and messy ones, and only slumlords would rent to us. We own because DH is a professional handyman and carpenter and can fix about anything (except for the hole in the roof.) We own because we want to decorate the walls, rip up carpet, etc. We own because we want to dig up the yard and have gardens.

But if we had a different lifestyle, I would consider renting. If I were single I might just rent, hard to know.

I would not buy a condo. Sharing maintenance decisions with other people who are seldom of the same mind as I am would never be a "go" with me. Too many people want instant gratification, want to throw the condo association money at the "pretty" stuff like landscaping, new carpet, etc and put off roof repair. I don't want to get into bed with those people unless perhaps the condo was just a small part of my net worth.

[ApatheticNoMore]

For me home-ownership is the only way to go. It is not about the finances but we have been renting for four years and not one day did I feel comfortable knowing that this house belongs to someone else who could show- up at any time. No garden or clothesline, no painting or doing things to the house as we wish.

This is a very narrow view of renting. I know renters who do exactly what they want with the yard (they're doing edibles). I know renters who have painted the walls (at apartments no less not even houses). Of course not all landlords are going to permit it. It all depends on who you have as a landlord and what arrangements you have worked out, so you might have to be a bit careful in that, you can't just pick out any old rental and necessarily assume, but yea I've seen it all done with renting with people I know. And this apartment building has a clothesline. Unlike growing veggies, or painting the walls, I can totally see lots of big pets (not owning a cat or something, there's always several people who do even at the places that are officially "no pets allowed", but the big stuff) being much more of a problem.

[Tussiemussies]

This is a very narrow view of renting. I know renters who do exactly what they want with the yard (they're doing edibles). I know renters who have painted the walls (at apartments no less not even houses). Of course not all landlords are going to permit it. It all depends on who you have as a landlord and what arrangements you have worked out, so you might have to be a bit careful in that, you can't just pick out any old rental and necessarily assume, but yea I've seen it all done with renting with people I know. And this apartment building has a clothesline. Unlike growing veggies, or painting the walls, I can totally see lots of big pets (not owning a cat or something, there's always several people who do even at the places that are officially "no pets allowed", but the big stuff) being much more of a problem.

Hi apathetic,

Glad you shared your point of view since this has been my experience, it's nice to know what is available for others...

[bunnys]

I am of the mind that home ownership is better than renting.

I just can't get past the fact that one day, this house will actually be mine and I'll never have to worry about paying for housing again. If I rented, I'd have to write that rent check the first of every month until the day I died. Not appealing to me in the least.

And as far as the person who said that real estate is not necessarily a good investment any longer, we all need to remember that before the crash, real estate was appreciating at a rate that was absolutely extraordinary and unsustainable. That's why there was a crash. Bankers wrote mortgages for anyone, regardless of their credit worthiness because they were certain that if the loan went bad, they wouldn't lose money in the long run because the house would have appreciated so much in the interim that they'd be looking at a hefty profit anyway if they needed to reposess.

In the long run, given all the little bumps in the road, real estate is an excellent investment. These housing prices will recover. They have already started to recover. So I'm not going to worry about that. Plus, you're in a great spot to buy now that prices are low and you don't have to unload a house at a loss.

[Tussiemussies]

Prices are so low and also interest rates are very low. A great time to buy!

[Tradd]

Hello, Lifeflow!

I'm in my early 40s and I've always been a renter. Part of the reason is that I live in an expensive area (Chicagoland) and even to buy a small condo would cost more than renting. Plus, I like the no-responsibility part for repairs and such with renting. I'm a single woman without kids. I'm not a handy, fixer-upper type. Gardening and yard work never held much interest for me. I have moved every few years, depending on where I was working (I've now been in the same apartment for 4+ years - great landlords, etc., so I'm here to stay. My rent has never increased!).

I also know a great many people who were pulled into the "must buy NOW" mentality in the mid-2000s. They lost their shirts when the economy tanked and their mortgages were underwater. The people who had chastised me for being a long-term renter suddenly looked very foolish.

[Tradd]

Prices are so low and also interest rates are very low. A great time to buy!

IF you have the money. One of my coworkers was pushing someone else to buy. Turns out the person had very little in savings and a mortgage payment would really have been a stretch.

[herbgeek]

I bought a condo in 1987. It was significantly less in price than places closer to work, and we thought the price was a good deal. Sold it 10 years later for less than 60% of what I paid for it. If we hadn't already paid it off, we would have had to bring a lot of money to the closing. Twenty five years later, the prices are still not up to the original levels. Perhaps the prices will eventually rebound, but I couldn't wait that long. After 10 years, most of the original owners had sold to folks looking for an investment, or rented out their own units themselves, and the people who moved in made my life a living hell, with noises, trash and vandalism. I wanted out of there, so we took the loss. Losing money in real estate is not a new phenomenon.

[Zoebird]

for me, the deciding factor is whether or not you are really mobile. we consider ourselves "really mobile" and as such, we are choosing to rent for the foreseeable future. it just makes sense for us.

[SteveinMN]

True, losing money in real estate is not a new phenomenon, but I think the current crisis has tarred far more homeowners with the lost-equity brush than those who didn't buy wisely (not implying anything here, btw). Everyone took a hit; some more than others; some better able to withstand the hit than others. While prices are recovering in some areas, for most neighborhoods they still are nowhere near where they were. Getting back there is the definition of "recovery". Millions of homeowners who bought in the 2000s will have to wait several more years, maybe decades, before prices get close to where they were. And, in some locations (where the housing bubbles were frothiest or in fourth-ring suburbs full of McMansions and thirsty vehicles needing $4-5/gallon gasoline), I fully expect recovery may never come at all and those will be the new poor parts of town.

Real estate in some areas still is a good investment. As the old saw goes, they're not making any more of it. In fact, given climate change and extreme meteorological events, there well may be less of it than before as some land is declared uneconomical to build on. But the old days of steady appreciation, I think, many homeowners are hostage to all the recovery that needs to take place first.

[awakenedsoul]

That's true. One thing that helped me was to buy a small house on a piece of land. (567 sq. foot house on a 7.300 square foot lot.) I didn't lose equity because the value of the land has continued to rise. My brothers did the opposite. Two are way underwater and the third lost his home. (He spent $800,000. at the height of the market in the Bay Area and he's single!) He used to work as a mortgage lender...

[Tammy]

This article says that on average renters save $6000 a year as compared with owners.

http://m.cnbc.com//id/49475505/Renting_Beats_Owning_But_Both_Take_a_Bigger_Slice

[razz]

It depends on a number of factors. If you are younger, capable and can weather the changes and risk in home homeownership over the longterm, it is worth it. If you will be needing to pay full cost for all house maintenance due to aging or physical ability, find a reasonable place to rent.

[lifeflow]

Oh, my goodness, so many replies! Thank you, everyone! Some of you asked me to provide a bit more about my situation:
* Income is very limited as I am self-employed and the work fluctuates. I get income from clients here in Portland and California...some months = $200, others $500, really depends. Plus, I get $800 fixed income from inheritance monies (value about $420K). My basic expenses: $725/mo rent, $375 health insurance, phone $60, electric $30-45, other monthly expenses ~ $200 give or take. Yes, I'm single.
* Housing: my present duplex is a 2BR/1BA and it's really renting below market as the builders/owners are happy with the modest rental income (thank goodness!). It's the nicest place I've rented, the owners are attentive to any issues/problems.
* Homebuying issues: - Can't get any mortgage - income way to low; I envision, say with getting this duplex I live in (and I'd keep my fellow renter/neighbor...fantastic in many ways), getting the rental income from the duplex renter and a pretty well-designed/sturdy duplex home, plus I'm already here. The catch? The owners won't carry a contract or do a rent-to-own scheme, so I'd have to cash out my inheritance money that provides me with that $800/month + portion of that money is my own retirement money. Probably look at about $235K for this place, depending on inspection results.
* My lifestyle is variable, sometimes I'll go off traveling for a while, sometimes I'll nest.
* I referenced co-purchasing another plex unit but these are pricey and I really don't like the idea of evicting existing renters so that me and my friends can move in (and Portland is experiencing a fairly tight rental market), my conscience would be bothered! I know we'd have to see a real estate lawyer, create an LLC, etc. This way, I could conceivably pay my cash portion (but, hopefully, not touch that principal paying out that $800/month).
* A small Single Family residence-house would be sweet but I can't "carry" it...prices way too high for me.
* I like the duplex option as the buy-in would be inexpensive.
* Condos vary according to various factors, location among them. Some of these are astronomical due to their "hip" locations...makes me wonder where people get the money to buy these -- and they're small!
* My bottom line is to live as frugally as I have been but to get rid of the rental "rat hole" situation.

Thank you all for your kind help : )

[citrine]

I bought a condo 10 years ago before the boom, lived in it for 4 years and then sold it when the prices were high. I ended up renting for 6years after that and we bought a house last year. I hated having the condo because I really didn't know much about home renovations/appliances/crawl spaces/ and it seemed like everything would go wrong at once!
The rental gave me peace of mind....I was single and if anything broke, the maintenance guys would come and fix it!
I love owning the house now because my husband is the handy type of guy and we gutted everything so we know that everything will be OK for the next 20 years and we have money to replace the roof!
It seems that for your lifestyle, renting will work for now....it gives you the freedom to do what you want. You can also paint and make your rental beautiful. I did that in my apartment and was able to hang my clothes, have a little balcony garden, and a cat ( I became friends with the rental agent ).

[SteveinMN]

My bottom line is to live as frugally as I have been but to get rid of the rental "rat hole" situation.
If your bottom line is to live cheaply and you're already in a nice place at below-market rates, I don't think you're going to do much better than you are now.

Your "rat hole" comment is interesting; you seem to have internalized that "renting is wasting money". But if buying a house will be, for you at best, an economic wash and introduce a bunch of variables (will I continue to have enough rent to live? what happens when I leave for a while?), then you really are saving money, a key element of living frugally. You have not mentioned real-estate investment as a purposed goal and you have not said anything about wanting to leave behind an estate for loved ones. So aside from what seems to be a perception, it doesn't seem owning a home is worth the cost considering it will only address the "renting rat hole" issue.

[iris lily]

When you are as old as I am you see the real estate market go up and down. I've lived through two run-ups. Yet--I've never made money on real estate.

I am a casual real estate hounds and watch sales prices. In my neighborhood I know who made nice stashes of cash in buying a house and selling it a few years later and that was: not many people at all. And those who sold high, unless they moved down in their next place, just had to put that gain in the next house.

Really I think the smartest girl was someone who bought a small place at the first uptick of the market, held it for 3 years, and sold it making about $30,000 - $40,000. Only a tad bit of work on her part. Oh well, she DID lie about some stuff in order to get a "first time owner" cut rate mortgage form the state. Her husband was the owner of record. He never lived there, they rented it. But she could still have made money without the lie.

[fidgiegirl]

My inlaws played the real estate game for many years and moved a ton of times due to DFiL's work. They are not one penny ahead financially for having owned all those homes - in fact, they would have been better of renting.

[nordette]

Hello, Lifeflow!

I'm in my early 40s and I've always been a renter. Part of the reason is that I live in an expensive area (Chicagoland) and even to buy a small condo would cost more than renting. Plus, I like the no-responsibility part for repairs and such with renting. I'm a single woman without kids. I'm not a handy, fixer-upper type. Gardening and yard work never held much interest for me. I have moved every few years, depending on where I was working (I've now been in the same apartment for 4+ years - great landlords, etc., so I'm here to stay. My rent has never increased!).

I also know a great many people who were pulled into the "must buy NOW" mentality in the mid-2000s. They lost their shirts when the economy tanked and their mortgages were underwater. The people who had chastised me for being a long-term renter suddenly looked very foolish.

Like Tradd and others I too have always been a renter. I've played with the idea of joining up with a community to buy a communal space but knowing me and my personality (I like change a lot and get bored living in the same neighborhood often) I knew this wouldn't be ideal for me. I live in a very expensive part of the country as well, but my overall living costs are very low and comparable to small town America. As far as wealth building, my own little brand of laziness - renting works well for me. And being childfree - its not like I have heirs to leave my assets to anyway.

For me the number one reason I don't have an interest in buying is the huge number of sunk costs. I really like the flexibility that comes with renting. Sure I don't own my space, but really no one does. At one point the bank will, or the county will after it is paid off...but the notion of true ownership is a bit of a misnomer because it depends on one's belief system. I've tossed the idea of ownership to the wind and am fine knowing that the space I've parked myself on for now doesn't have my name on the deed.

The issue also depends on your support network and how reliable they are. Even if the numbers play out - you need to consider the costs involved from a community perspective - how do you deal in terms of a natural disaster or a man made disaster...the pressure from society to conform to mostly arbitrary beliefs is very strong - no denying that. But if I were you I'd take some time out to think and make a list of what it is you want and the alternative ways you can get it without buying. If buying is the only solution (and not just a rational to justify the emotional desire), then by all means go for it!