Throughout our adult lives, I thought my wife and I had been pretty diligent about saving money and living within our means. As I began to read some of the blogs out there, I’ve been both amazed and impressed with the level of spending discipline that some people have shown and am beginning to rethink how well we’re actually doing. I’ll attempt to document the pros and cons of how we’re doing in some of the major categories, beginning with one of the major expenses people have in their lives…
My wife and I bought our house in 1994 at about the same time we got married. Our income would have been described as middle class – I was an accountant, she was a teacher. We were both stunned at the amount of money that mortgage companies said we were qualified for. When we figured out what the monthly payment would be on that we wondered what we would have left for food, savings or other expenditures. The house we ended up buying was about 50-60% of what that original figure was.
Fast forward to 2013. We’re still in the same house while many of the people in our area took advantage of housing booms (remember those?) and upgraded from the 2,000 sq. ft homes into the McMansions that seem to be everywhere these days. They have re-upped for 30 year mortgages and have refinanced along the way to put the equity into increased spending. Our mortgage has been refinanced a couple times but it has been done to lower the rate and decrease the years. That has led to a payoff date of 2017. While not spectacular we did shave seven years off the original payoff date. The mortgage works out to under 6% of our income so we have definitely not upgraded our housing as our income has grown.
The one thing that has gnawed at me a bit is that we haven’t taken advantage of the extremely low rates out there. Our mortgage is at the point where we’re paying much more principle than interest and the balance is less than $50K so there aren’t a lot of favorable products out there that make sense to me. I guess there are worse problems to have in life so I won’t beat myself up too much over it.
I grew up in a small house on Lake Winnipesaukee in New Hampshire. Through a combination of bad genes and smoking both of my parents passed away before I turned 30 which means the house was left to me.
Although I will never be mistaken for a sentimental individual this is not a house I can sell. I grew up there, my family and I love the house and my wife’s family lives in the same town. My wife is a teacher so she and the kids move up there for the summer and I take long weekends plus some vacation time to maximize my time there. The financial part of brain understands that selling that house, which is mortgage free, would bump up our bank account quite significantly. I guess that if our financial situation became dire it would be an easy solution but for now I am content mentally putting it more on the liability side of the balance sheet rather than the asset side.
Because the majority of the estate passed on to me was this house, that means the taxes, insurance and all the other stuff that goes with home ownership gets added to our monthly expenses. I have not taken the time to break out all of these costs separately from the rest of our expenses but if I was to hazard a guess I would say it adds up to about 5% of our gross income.
Because we have never increased our first home costs to keep pace with our growing income it means that we’ve been able to maintain a total housing cost (mortgage, insurance, taxes) of about 13.5% of our gross income. After the mortgage is paid off in four and a half years, the cost of housing will move below 8%. At this point I’m comfortable having housing make up that portion of our gross income.
I know there are many ways we could improve our current home ownership cost – sell the second house or relocate to an area of the country that has lower property taxes just to name two. When retirement time comes we are planning to become the prototypical snowbirds and will use two main criteria in choosing our winter home. First will be a state where home prices are at a discount to those in New Hampshire. We will be targeting a home that is about 50% of what we sell our current house for so that we can add that equity to our retirement nest egg. The second criteria will be a low property tax state. Income taxes will not be a concern because we will make sure that we spend more than the required 50% of the year in New Hampshire to keep the state tax man at bay. My wife and I have had passing conversations about where this location may be and the general thinking is that it will be in the Carolina area – North or South to be determined. We’ve still got some time to figure it out.