Last spring I published a post that was inspired by an email I got from a reader named Kate. She wrote about how being able to pay for something isn’t the same thing as being able to afford it, and I loved her perspective. We had some back and forth emails, and then at the end of the summer I got this email from Kate:
Thank you for your advice a few months ago on helping me decide which house would work best for us. I used your approach and MMM approach of seeing how much even a $200 a month increase in housing payment can cost us over 10 years. For me, it adds up to putting one child through college at a state school. WOW! Who knew. For those of us not born frugal or raised frugal, $200 is not something I would considered a big price difference. Yet, it all adds up. So we went with a smaller place.
We are currently under contract on a townhouse that is in a small town. My girls will be switching schools so that we can be less car dependent. Our townhouse is 1800 sq feet with no basement in a less desirable neighborhood. Yet, we will be saving 40% of my husbands income (20% before taxes and 20% after taxes.) I am following the 50-30-20 budget rule.
Here is my question…. Can you ever be too frugal when purchasing a house? Can you buy a house that is too small and regret it?
We choose our house on the fact that it needed no work, walking distance to town and where the payment was $1500 or less. Sure the bathrooms are not new but they have been tastefully been maintained and I don’t feel the need to touch them for a while. In fact there is nothing I feel the need to do. I never thought that day would come.Most single family homes that were $30,000+ more needed a lot of work. My mom was even going to give me the $30,000 to buy the place that was 200 square feet bigger but also had a basement. I declined because they needed new kitchens, hardwood floors, etc. everything in the house was 25 years old. I just felt like I would be putting a lot of money into the house from day 1. My mom was already helping us with downpayment and I didn’t want to be greedy. The house we chose is everything that we need for now. It is simple. No decisions or renovations with three kids under your feet. We will have our full weekends to spend with our kids and 30% of our budget to spend on our “wants” which hopefully will keep us out of our house doing fun things.
Thoughts? Can 1800 sq feet be too small for a family of five?
Thanks in advance for your help. I live in a very wealthy town and people Just spend spend spend. I want to have a dream life not a dream house. My family and friends think I am crazy for going so small. Yet they also are not in touch with their finances. Thanks!
This was my response:
Congratulations on the new place, and on your awesome savings numbers! I love your philosophy. My husband and I earn roughly the same income as most of our friends, but we bought a house that is half the price of the houses that nearly all of our friends bought. That means that we’re able to pay off the mortgage faster and our debt obligation is much smaller (makes it easy to sleep at night when you don’t have to worry that a month or two without income would send you into a tail spin).
And I think 1800 square feet is perfect for a family of five! We have 1300 square feet – soon to be 2300 once the basement is finished – for a family of four, but we both work from home so we need space for that (and my husband needs space that is quiet enough to be on the phone all day, even with two little boys running around the main part of the house). Even still, with a finished basement I think 2300 square feet is going to feel like a mansion – maybe even too big. Ideally, I’d have gone with a smaller house, but we bought this property because of the yard, and just took the house that came with it. Have you ever read the Tiny House Blog? I love it, and I find it really inspiring. Take a look when you get a chance.
We’re also happy with our current house and not doing any upgrades or remodeling other than finishing the basement. Our house was built in 1999 and everything is basic builder stock (doors, counters, fixtures, mirrors, etc.) Our dishwasher broke and we replaced it with a nicer one, but we still have the original stove and laminate counters and low-end carpet. Everything is in good shape and pretty neutral, so why change it? I see so many people upgrading their homes just because… Nothing is wrong with the old stuff, they just want to remodel or follow a new trend. Tile back splashes covering the walls between counters and cabinets, granite counters, fancy faucets, new flooring, stainless steel appliances… the list is endless, and it truly never does end because the home supply manufacturers keep coming up with fancy new designs and products.
The way I see it, that sort of constant upgrading is bad for the wallet and bad for the environment. What happens to our perfectly-good-but-not-fancy laminate counters if we replace them with granite? Same with the carpet. Landfills must be overflowing with stuff like that. Once our carpet or counters are old and cruddy looking or very damaged, it would make sense to replace them and we could consider replacing them with something nicer. But not when they’re in fine condition but simply not the newest trend. I like home organization blogs but I’m always struck by how often the owners rip out perfectly good things in order to replace them with the newest trend. To me it seems like a waste of money and resources and time. So I’m with you on having a “good enough” house and then spending time doing things that are more fun.
I’m glad you’ve discovered MMM – that blog is another great resource for people looking to live well under their means. I find it helpful to identify with like-minded people (online if I can’t find them nearby) and have them be my “Jonses” to keep up with, rather than comparing myself to people who live lavish lifestyles and spend most of what they earn. Enjoy the freedom that comes with having a house that is “just enough” – time to have fun, no space to fill with extra possessions (forced minimalism is a good thing!), and more money to put in savings since your house payment is lower.
I wanted to post this email exchange for the rest of you to read too – a little inspiration in case you’re looking for ideas from someone who is opting for a “dream life instead of a dream house” (Kate mentioned that concept in another email, and I love it! – Think of all that we can do with our time and money if we’re not spending it all on our house!)
By keeping our house payment to a smallish chunk of our monthly income, we’ve been able to pay off the mortgage faster and also build a decent chunk of money that we’ve earmarked for eventually paying off the loan in one chunk (of course, we could also use it as an emergency fund if need be, which is why we’re hanging onto it for now instead of making overpayments on the loan). We’ve also been able to max out our IRAs, HSA and SEP IRAs over the last few years (not all of them in every year, but most of them, most of the time), which is setting us on a good path towards retirement. Ideally we’d like to have the mortgage paid off within the next few years (we technically have 8+ years to go if we just pay the amount due each month until it’s paid off) and continue to aggressively build our retirement savings so that we can have more options as we get older. We might choose to continue working until we’re 70… I’ve learned to never say never, because life changes and we should be able to change with it. But we’re working towards the day when we don’t have to work. When we can work just because we like to, and not because next month’s bills depend on it. Moving to an inexpensive town and buying a reasonably-priced house had a big impact on our ability to save for the future and mostly avoid money stress. So did our efforts towards minimalism – striving towards having clear surfaces and rooms with lots of space in them is a great way to not spend money! And of course, the fact that we purchase nearly everything used helps a lot too. Joshua Becker published an article today about how to live on one income, and I think a lot of my readers will like it. It ties in well with everything else in this post, so I thought I’d share it with you too. Even if you don’t want to actually be a one-income family, living on one income (and saving the other if you’re really a two-income household) is a very good way to set yourself up for long-term success. Live well below your means in order to always be able to live well!
for best annuity rates see Pensions & Wealth Management Services Ltd
Rachel says
My family has four members, and we live in a 700 sq ft apartment. It works perfectly for us right now, and I think it will still work when baby #3 is born in March–at least for another year. As the children get older, our current space will definitely be too small, but I think a family of 5 could definitely be comfortable for the long term in as little as 1200 sq ft.
HOWEVER, that requires a commitment to keeping stuff under control and limiting toys. I find limiting toys helps a lot with behavior too, and that is vital to living in a small space.
It’s also worth noting that rental ordinances usually set the limit at 5 occupants for a 2-bedroom space, which encompasses a wide range of square footage. My experience is that the number of rooms and their layout has more to do with how comfortable a space is than the size of that space.
Frugal Babe says
Congratulations on the soon-to-arrive newest member of your family! I think that limiting toys (for both kids and adults!) is an excellent strategy, even for people with a large house. It’s just so much easier to clean up and keep clutter at bay if you limit how much stuff you have in the first place. With gifts from Grandma combined with Goodwill, I have to keep on top of the toy situation or it would quickly get out of hand. One in, one out works for us, and just makes sense. Otherwise, the toys seem to multiply very quickly.
kat89 says
We took somewhat of a different path from you. We moved into our home 20+ years ago. It was a small 2 bedroom cottage on several acres and we had planned on gradually modifying it for our needs, like you are right now. A couple of years later, not long after finding out I was pregnant with my 4th child, we arrived home to find our house in flames. Apparently the old wiring couldn’t take all of the wear and tear of a family with large laundry needs, small appliances and an good sized air conditioner. My husband and I had a long talk about how to rebuild and decided to frame out a large home and finish it gradually, whenever we could afford it. It’s been 20 years and we’re still not finished but we’ve made great progress. The reason we decided to build bigger, knowing that it would increase our taxes and utilities was because we wanted to have space for our children to entertain their friends, for us to entertain our families from far and wide, and for my husband to be able to run his business out of our home, rather than rent an office somewhere. The other reason was because we wanted to be proactive for our parents. We knew that eventually one or both sets would possibly need to live with one of their children and we knew that we were in a unique position to be able to provide that place. We now have my parents here for half of the year and the plan is for them to move in full time. We also host most of the family holidays and parties, since we have a large open floor plan in the house and can fit our large families here easily. I don’t feel that it’s been a waste of money, I think it’s all about priorities. Virtually all of our furniture is secondhand, and my children were raised with hand-me-down clothing. We grow and prepare a lot of our own food, I sew, so all of our blankets, curtains and slipcovers are handmade, as are many of the gifts we give. All of the artwork in our home has been done by our children, friends and family. My husband and I are very handy and have done all of the work in this house ourselves, which is a great source of pride and we’ve saved a lot of money by doing this. We live comfortably on a budget and have some money saved for the future. Maybe not as much as some other people our age, but we’re working on that now that the kids are all grown and I’m able to work full time outside of the home again. I don’t regret building larger and for me, it’s worth the extra money we spend to live here.
Frugal Babe says
I think this sounds great! So sorry about the house fire – that’s never fun, no matter how long ago it was. But it seems like you recovered very well and have been thoughtful and purposeful with your new home. I love the fact that you’ve done it all yourselves, and little by little as your budget allowed. We’ve finished our basement ourselves (we’re to the painting stage, so we’re getting close!), with help from my parents on the plumbing and wiring. We do get a wonderful sense of satisfaction when we go down there now. We’ve been working on it for more than a year, but finishing it ourselves is great in terms of being proud of our work, and it’s also a lot easier on our budget than hiring it out would have been. Just to clarify, the house described in the post is Kate’s, one of my readers. My family has been living in a 1300 square foot house for 10 years, but we’re on the brink of adding another 1000 square feet as soon as the basement is finished. So although I love small houses, ours – at 2300 sq ft – definitely doesn’t qualify as small. With both of us working from home and two little boys who are here full time with us, we need more space than a tiny house can offer, especially when my husband has to spend a good chunk of the day on the phone with clients – he needs a quiet space for that. Quiet spaces and little boys are hard to mix unless you have room to spread out!
Meg says
We bought a bigger home at auction for $35,000 with a little bit of land knowing that it needed alot of work. Even now, 5 years later, we are still doing our own repairs and making it our own. There are still a couple more rooms to finish for the house to be “complete,” but we are OK with that.
We took a mortgage out to include the new septic we needed ($12,000) and new roof ($5,000) along with the house.
Today, we are a couple of years in on our 15 year low-rate mortgage, and I love knowing that our payment is 10% of our take-home income. We know that if one of us were to lose our job, we could make it financially because of the choices we made on our home. All repairs we make on the house are using cash that we save up so that our payment remains low.
We are learning that with just two of us, our 1890 sqft house is too big (we thought our 1100 sq ft home was too small: we were so wrong!) We are talking of converting a 800 sq ft of the home into a small business just as you are doing with your basement.
I agree that having a small mortgage has helped us to meet other financial goals over the past few years and we look forward to paying off our mortgage early. It is hard to believe that mortgage companies say you can afford 3x your income in house. No way. That would give us a $200,000+ mortgage. No. Thank. You. I choose financial freedom instead.
frugalbabe says
I agree – a mortgage that’s three times our income would blow my mind! But that’s what most of our friends have, and it’s what a lot people consider normal. I’d much rather have a payment that fits easily into our budget and allows us to pay off the loan much faster than scheduled. Your house sounds great, and your mortgage payment being only 10% of your income is fantastic. It wouldn’t be a stretch to cover that, even if one of both of you had a job loss for a while. It’s amazing how much further an emergency fund will stretch when the mortgage is kept on the low end of the scale.
Caitlin Stevens says
My husband and I bought our house three years ago. It’s an old house (built about 1920) and it’s about 1100 square feet with kind of a strange layout. The entire upstairs is two bedrooms; you have to walk through one to get to the other. We’re hoping to have a baby in the next couple of years, so we’re figuring out ways to make the bedroom you walk through into a nursery. When we first started talking about having kids we thought we might move, but we’ve decided to stay here for the time being. We got a good deal on the house when we bought it, and it’s small size means that it’s much more economical to heat (we live in New Hampshire so that’s very important). It’s definitely quirky but I like that. It has lots of great attributes and since we’ve lived here I’ve thought of lots of ways to make it work better for us. I feel more comfortable keeping our manageable mortgage payment–we are actually refinancing from a 30 year to a 20 year mortgage, and with the lower rate we’ll be making the same payments but will be able to pay off our house more quickly. I’m also working on clearing the clutter in our house, and when we have kids I plan to try to keep the toys etc. to a minimum. I definitely agree with the point that smaller houses force a certain degree of minimalism! Since we moved in I’ve stopped accumulating and started cleaning out.
I also love the idea of a “dream life instead of a dream house!” I’ve also learned that you really need to think about things differently, and you need to look at how you use your home. For example, we like to have my extended family over for dinner, but we don’t have room for a big kitchen table and we don’t have a dining room. So we have a kitchen island that expands to a larger table, and we push that over to our kitchen table. When my family goes home we fold it up again. Along those lines I’ve also come up with another idea for adding room: we can build a bench along the wall where the table is, creating two extra seats for the table, still allowing us to push the table against the wall, and providing storage space under the bench. It’s not worth buying a bigger house so my extended family can eat in a dining room once every three weeks or so! (We rotate having dinners at each others’ homes.)
I also think we’ll be fine in our house with two or even three kids, as long as we get creative. If kids have space to play outside of their bedrooms then they don’t need huge bedrooms and they don’t all need their own room. To me being creative is more fun anyway, and getting by with smaller space is actually something I’m really proud of now, even if other people think it’s odd.
frugalbabe says
I think your house sounds great! And a mortgage that doesn’t keep you up at night is a very good thing. Being creative with making an existing space work instead of upgrading to a bigger/better house is a great plan. You can spend a lot of money on a remodel or addition and still have spent less than just the realtor fees and closing costs on a new house. Not to mention the fact that the new house would probably have a bigger mortgage payment. Your plans for your house sound great, and I wish you all the best with your baby plans too!