Everyone knows the story of Goldilocks. She wants the porridge that is not too hot and not too cold, but just right. Similar can be said for buying a house.
Buying too small of a house is the lesser of two evils. However some financial gurus go to the extreme by trying to live in a tent to retire a few months earlier. A too small house may be a little cramped, but hopefully that means you will spend more time outside and in a rural area you should have a yard to do that. Another thing to keep in mind is perspective. The average house size in 1950 was 983 sq. ft. and it housed 3.37 people. In 2023 the average house size is 2164 sq. ft. and the average family is 3.13 people. In short, houses have doubled in size and families have gotten smaller. Everyone expects to have a huge house like their parents when it may have taken decades for your parents to work up to that house.
If you have read my previous post, then you know I prefer living in LCOL areas where housing is still affordable. However, even though you may be able to buy a $500k house there are plenty of reasons why not to.
First an expensive house means an expensive neighborhood and if you are like most people then you will probably get a case of “keeping up with the Joneses.” This happens in several ways but here are some examples:
People in expensive neighborhoods generally have nicer cars and if you are stretching your salary to get in a neighborhood, then how will you feel when you are driving the beater car on the block. A horrible reaction would be to try to keep up with your neighbors. Almost always car values drop in value considerably and are the easiest way to detonate your financial future. In a middle class or working class neighborhood it will be easier to fit in if your car is a little weathered.
Landscaping is another thing you need to probably budget for in an upper class neighborhood. Mowing your yard yourself every few weeks and having a few bare spots from the dogs is okay in a middle class neighborhood, but once you enter the world of HOA’s, then you will have the added HOA expense as well as the pleasure of paying for professional landscaping less you make those that have no life place a lien on your house. That’s right a HOA can take your house if you don’t follow the covenants.
A smaller house means less house to repair when you need to repair. Smaller roof, plumbing system, eletrical system, HVAC system and less walls, floors, and ceiling to maintain. If you need to replace any of these systems, then it will be cheaper and because you are not house poor then you will have the money to replace them. If you need to reinsulate the house then a smaller sq. footage will allow you to do it for cheaper. Simply less house means less to repair.
The linchpin in my entire system is buying an affordable house so you have a large gap between your expenses and earnings so you can save as much money early in your career to get it compounding. Also though there are considerable expenses when buying and selling houses, buying a small house early and then upgrading later when you are on firm financial ground with your investments is a great and responsible plan. I believe that throughout our lives we work and live in different seasons. Frugality for a time early means you can be extraordinarily generous or a spendthrift later while maintaining excellent financial health.
It also needs to be said that there isn’t any shame in appearing middle or working class. In my post titled Stealth Wealth, I make the argument that it is much better “to be rather than to seem” wealthy.
It is a hard sell for me to tell you to buy less house than you want; much of American culture and commercialism preaches for you to buy more and more forever, but there is financial independence, retiring early, and creating generational wealth to gain of you can follow the path.
Millionaire Librarian 