Preparing for retirement: Housing
Preparing for retirement: Housing
In the spirit of continuing my journey towards financial independence, I thought it would illuminating to give a more detailed look at our spending plans post-‘retirement’.
Everyone’s favorite blogger MMM just posted his yearly expenses, and it is well worth your time to review them line by line. It’s simply amazing to me how little he can spend, yet clearly have such a rich life at the same time. Truly, this is something we all should aspire towards.
In an effort to bring my families spending more in line with his, I think it is helpful to compare what I am currently doing to my future ideal self, and at the same time compare to MMM to see where my delta lies.
Up first: Housing
Let me admit it up front: Housing is a weakness of mine. My wife and I earn good incomes, have been good with our money for years, and generally tried to live cheap before we had children. Sure, we made some mistakes along the way (stupid me purchased a house in 2005…only to have to sell it in 2007), but overall we have always made smart decisions.
With the exception of the 18 months I (stupidly) owned a condo, we were renters. We lived in a variety of crappy apartments that provided everything that we needed for several years. When our first child came along, we were renting a house from my parents for quite cheap, all the while dreaming of our first real house.
It ended up taking 3 years for us to find the house of our dreams. We knew it when we first opened the door during a visit. It was in a great neighborhood in a town with a great school system. It was located right by the highway, so my wife’s commute was an easy on, easy off 10 minutes with very little traffic. It’s 3/4 mile to the grocery store, home depot, and 4 miles to the town beach. It was on a cul-de-sac, so our worries of our kids/dog being run-over by a car are minimal. It had an open floor plan, and with 4 bedrooms and a large unfinished basement (with high ceilings). It was 15 minutes from my parents (each of whom drive by my neighborhood each day on their commute’s to work!), and 5 minutes from my brother.
Overall, it was a MAJOR step up from all of our housing that we had at the point, and was by far our favorite house that we’d ever seen. We put an offer in the same day that we toured it.
Unfortunately, the seller didn’t seem all that motivated to sell. Thus, despite our negotiation strategies, we ended up paying full asking price for the house. We simply were done looking, and wanted the house.
After closing on the house, we got to work.
The people that we bought the house from were chain smokers, so before we moved it we spent a fair amount of time and money getting the house where we wanted it to be. We painted every room. We refinished the floors, and re-carpeted the entire upstairs. We put in a new heating/cooling system, expanded the size of the back deck, fixed the fence, and replaced the skylight. We also spray foamed all the window’s, (and tinted the ones that get a lot of sun), and added a TON of insulation to the attic. We replaced the washing machine, dryer, stove, microwave, and fixed a lot of the landscaping.
So, after investing all of that time and money, how much has the value of our house gone up?
…..I guess that’s just what happens when you overpay for your house to begin with…….
Now, don’t cry a river for me just yet. We LOVE our house, as all of the things that attracted us to it in the first place are still true. With my son slated to start kindergarden next year, we will finally get to take advantage of the local school system.
So, with all of that laid out there, what’s the cost?
Here is the breakdown:
Yup. Thats right MMM…..my housing costs are more than 10 times what your’s are!
Looks like I have some work to do……..
I called my insurance company to try and lower my cost’s. Aside from rasing my deductible, there isn’t much that I can do. I did raise my deductible, but I only ended up saving about $100/year. I know MMM preaches lowering your coverage to just the dwelling (not for land/basement/other structures), which would lower my costs more. This is something that I may do in the future.
My homeowner fee is set in stone, and is quite reasonable. It providers for general landscaping around the neighborhood, as all the common area’s look quite nice. We also run the neighborhood at a surplus! So, this number should be pretty stable.
RI real estate taxes aren’t the best. They are not as bad as New York / New Jersey, but they are no where near as good as Colorado. Lucky me.
My repair/renovate bill is quite reasonable, but I’ve also got a big bill coming my way for a new roof in the next year or two. I really want to get a metal roof, and this is one expense I need behind me before we call it quits.
As for the mortgage itself, I am now 100% focused on punching it in the face. Yes, I know I can invest at a higher rate than the 4% charged by my mortgage company. But this isn’t about growing my net worth quickly: its about dropping my expenses before retirement.
So, once my mortgage is gone, and I’ve got a new roof, what will this category look like?
Probably something like this:
Ahh….much better! I figure $600/year should cover me for quite some time, as my appliances and major system will all be relatively new. Sure, I’ll still be spending almost 4 times what MMM does in housing costs, but the bulk of that is because of my RE taxes.
Perhaps you are asking yourself if I would consider moving to knock these expenses out sooner (and lower the taxes in the process).
I’ve had that talk with Mrs. Long Term, and we both simply like it here too much to consider that. She likes her job, and my family is close by. We are also starting to lay some down some roots in the area, and we love having the beach so close.
Plus, it sure would feel like a punch in the stomach to go through the pain of selling the house, only to have someone else take advantage of all the work and money that we put into the place to make it so great.
So, yes, housing truly is our weakness.
One category down, and we have a long term plan. Now, its mortgage face punching time.