On the way to financial independence, reducing your expenses is the most powerful thing you can do. Whether you rent or own, housing is probably one of your largest bills. While it’s fun to claim small victories like eking out a 44% discount at Taco Bell, it makes way more sense to invest your time in destroying your biggest expenses first…So let’s do it!

There are four main ways to dramatically reduce your housing costs, and you only really need to commit to one or two of them to see a life-changing effect. This isn’t some rigid financial rulebook; you get to make the choices that work for you, but the more you stick with each one, the faster you’ll find yourself hurtling toward financial freedom.

1. Live with Other People to Reduce Housing Costs

Taking on roommates is an obvious way to slash housing expenses instantly. If you rent a home by yourself and just take in one roommate who splits the costs, you immediately save 50% on your biggest bill — that’s powerful.

Even when you get a bigger place to support roommates, the amount you save is still massive. In our area, 1-bedroom apartments are about $850/month. A similar 2-bedroom place is closer to $1,000, meaning the per-bedroom cost drops to $500. Upgrade to a 3-bedroom unit, and you’re looking at $1,100 total, which is only $367 per room! The math favors making some friends.

Graphic of roommate housing
My super scientific illustration of the above math.

Most people stop living with roommates when they get married or buy a home of their own, but there is no reason it has to be this way, especially early in life. As a married couple with a home we own, we’ve rented out a spare bedroom to friends on two separate occasions, bringing in an extra $500 per month each time.

A lot of people think having roommates is something people only do when they “have to” — that it’s a sign of some sort of financial failing. Don’t buy into the social stigma. Since our condo was paid for in cash, we never “needed” the money from sharing our home, but we did it anyway, and the financial surplus caused by decisions like that has allowed us to do some pretty cool stuff!

2. Choose a Lower Cost-of-Living Area

A lot of people take the area they live in for granted. Maybe you live somewhere because it’s where you grew up, where you went to school, where you have a stable job, where your family lives, or even where you’ve put down some serious roots with kids of your own. Regardless of your reasons, realize that living there is a choice, and that choice has financial implications that you have control over.

If you think you’d take a pay cut by moving to a lower cost-of-living city, make sure you do the math correctly before dismissing the idea. For example, if you could save $20,000 per year in housing costs by moving somewhere, but your same job would pay $20,000 less annually there, you’d think moving would be a wash, but that’s not quite right.

The extra money you make by staying put is subject to income tax, whereas the IRS can’t touch the cost savings you get by moving! In addition, stuff like groceries and utilities tend to be a little cheaper in areas with lower housing costs. The savings can compound in ways you didn’t expect.

When looking for a new place to live, keep in mind that median salary reports for specific areas can be deceptive. When we moved from busy Orlando to sleepy Gainesville, Florida, everyone told me I’d never find a well-paying job in such a small economy. Now I’m making more in a cheaper place. Sometimes just leaving the comfort of where you are can cause you to seek out opportunities you would have otherwise let slip by.

The reasons you don’t want to leave where you live now might go beyond money, so I’m not here to tell you what to do. I’m only asking you to consider that more breathing room in your financial life can actually buy you more happiness — and that’s what this is all about.

3. Opt to Live Closer to Where You Work

If you’re not willing to leave it all behind, try moving across town. It can have just as much of an effect! Reducing your commute saves you time, gas, car depreciation and maintenance costs, and it even reduces your risk of early death by car crash. Oh, yeah — it’s better for the environment, too.

I recommend taking it one step further if you can: Move so close you can walk or ride a bike to work. Suddenly, the gas and car maintenance costs associated with commuting drop to zero, and you get fitter and happier every day.

Photo of Steven's bicycle
I bought this commuter bike used, since any decent bicycle will last forever. It’s since been stolen and replaced, but I figure I’m still tens of thousands of dollars ahead versus driving a car.

Personally, I have ridden a bicycle to work for the past seven years. Not everyone can do that, but I didn’t just get lucky with my jobs’ locations, either. Moving strategically so I can live and work in the same place and commute by bicycle has been a deliberate financial and health choice I’ve made in three different cities in a row — and it’s paid off.

Lauren and I have shared a single vehicle over these past seven years, something we’d never be able to do if we both needed a car to get to work. That means our transportation expenses have been effectively chopped in half, including ancillary costs like car insurance! This is one of the single most important financial decisions we’ve ever made.

4. Ask “How Much Do I Need?” Rather Than “How Much Can I Afford?”

Regardless of whether you’re renting or buying, less is more. The benefits of living in a smaller place are both financial and psychological. Less space to fill and maintain means less money spent and less to think about every week of your life.

Photo of Lauren in our California townhome
Our little on-campus townhouse in California had two floors and always felt like a mansion to us. Orange County was the most expensive place we ever lived.

For a moment though, I want to focus on the home-buying process and how potential homeowners, particularly young people looking to buy their first home, are tricked into believing otherwise…

Walk into a bank to apply for a mortgage, and with any luck, you’ll walk out with a number. That number, the loan amount you’ve been pre-approved for, can send you down a 30-year path of crippling debt service if you pay any attention to it.

Your bank and your real estate agent both have a common goal to get you to buy as much house as you possibly can. Higher interest charges and sales commissions are what make their world go ‘round. They’re not evil; they’re just out to make a living like the rest of us, but it’s up to you to ignore their financial advice and buy only what you need to be happy.

I recommend doing an exercise before you ever get involved with a bank or an agent: Browse some real estate on Zillow or Craigslist, and get an idea for the least expensive homes available that you could see yourself living a happy life inside of. That should be your price target. Then go get your loan approval (if needed) and ignore what the bank says about how big a house you can “afford.”

For us, that target number was around $100,000 in 2016, and we actually ended up spending less than that when we finally bought a home. Your number may be higher or lower, but whatever it is, it should be your number, not someone else’s.

A Few More Thoughts on Housing Costs

There are a ton of big, important money decisions to be made about where you live, so you should take it seriously, but here are a few things to help you realize that it’s all way less scary than it sounds:

  • A lot of people stress over whether to rent or buy their home. That’s an important decision, but it’s actually way less important to your finances than any of the four options outlined above. Don’t feel pressured to buy a home as soon as you possibly can. You can reach financial independence as a renter, too.
  • Realize you’re never trapped, and most decisions have an “undo” button somewhere. If you bought a home that you now realize is too big or expensive for you, it’s never too late to sell and try again, even if that means taking a financial hit in the short term.
  • None of the four ideas in this article have to be permanent measures. You can go hardcore style, living with four roommates and biking to work for a couple of years in order to crush your debts and build up a financial foundation, and then take it a little easier on yourself down the road if you want. It’s your life!

— Steven

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