You can’t determine what affordable housing means for you until you know how much money you have, and how much money you spend. We’ve previously looked at the first; now let’s figure out the second.
Whether you use an expenses app on your phone, or write down every dollar you spend in a small notebook, get in the habit of tracking your expenses. Do this for three months straight. This will give you a pretty good idea of what you spend, and where you spend it.
You’ll need to group your expenses into categories. I use my own categories when I do this (I’ve done it for almost my entire adult life). They include:
- House payment or rent
- Property tax
- Health-sharing ministry
- Car Insurance
- Car expenses
- Car gas
- Disability insurance
- Life insurance
- House insurance
- Entertainment (includes dining out)
- Cell phone
- His hobbies
- Her hobbies
Many of these expenses are the same every month, so it’s not that hard to do this on a monthly basis. Just total these expenses, and any others you might have that I don’t have on this list; that total is an important number.
The big question is: how big is that number compared to your total monthly take-home pay? Do you spend more than you earn each month? If you do, something must be done. You need to be financially solvent going into your later years if you don’t want to end up living in your car someday.
If you’re spending more than you earn, I assume you have credit card debt. You’re going to need to get rid of that. If you have a spending addiction, you’re going to have to get help for that. If you live like someone who earns far more than you actually do, you need counseling to find out why you do that.
In addition to those issues, look at the individual categories to see where you can pare down. The largest categories are ripe for that, but the smaller categories add up, too. Be honest with yourself; where can you cut back so you can start spending less than you earn?
If you already spend less than you earn, congratulations! You’re one big step ahead of many people. Now you need to look at where you want to live before and in retirement, and whether you can afford it.
Over the past ten years or so, our country has seen an increase in homeless families. Some now live in their cars, even in traditionally affluent areas like Seattle. Avoiding this by being proactive is especially important if you’re not young anymore; younger people will (hopefully) have opportunities to bounce back in the future.
The only way to NOT end up living in your car (or worse, in a homeless shelter) is to secure affordable housing as soon as possible.
The first step is finding an affordable place to live (see last week’s post). There are many options for affordable housing. Renting may be OK if you can find a place where you’re pretty certain the rent won’t go up a lot. Living with someone else, like a friend or relative, with whom you can split costs is an excellent idea if you currently live alone.
The ideal is buying a small house with cash, something all on one level that can take you from your current age into old age without forcing you to move. Small houses have smaller-than-average utility bills, maintenance bills and property tax bills, so buying a small house is a good way to invest in your future retirement, helping you stay financially solvent even though you may not have a lot of retirement income coming in.
If you’re middle-age or approaching retirement age, dealing with long-term underemployment, or all of the above, you need to know how much money you have and how much money you spend each month so you can determine how much you can afford for housing. See the next post for details.
For some, downsizing their life is simply a matter of finding more affordable and smaller digs within commuting distance of their job. But if you don’t have a job or you’re about to lose yours, it’s possible you may need to find a new town to live in, possibly even a new state.
Yes, I’m aware of the increasing number of ex-pats out there (people who have left the U.S.), But I’m assuming most people, like me, want to stay in this country. They just need to know how to find a good place to live that doesn’t cost as much as where they live now.
I shared a great tool for discovering your perfect new town in Downsizing Your Life for Freedom, Flexibility and Financial Peace. Now I have two great links to share, which I’ll probably have my publisher add to my book, but that you can check out right now.
First off, here’s a wonderful document (PDF) that lists all the metropolitan areas of the U.S. in order of affordability. What a find! It starts with the most expensive areas. We moved from page 1 to page 5, making our lives so much more affordable in the process. Find your current town in the document and start looking further down to see where you might go to make your life easier, financially and otherwise.
Then, if you’re wondering where other people are moving, check out this interactive map, which shows who’s moving where and what the per-capita income is in every single county in the country. Be warned, though, you can waste a lot of time playing with this, it’s so interesting!