Some people think buying a home will solve all their problems.
Some people think paying off their home will solve all their problems.
Some people…. still have problems.
No matter what your living situation, if you are interested in FI, you are probably trying to financially improve upon some aspect of your living arrangement.
In this post, we are running some numbers on what we can control and what we can’t at this point in our housing journey.
Below is a quick dimensional layout of our two-story home (it is mostly deck)!
In 2012 we lived in a very affordable apartment that cost us $350 per month.
We only moved when we came across a very rare foreclosure. Once this house was completely remodeled and paid off, our monthly housing costs were about the same as in the apartment! Score!
Of course, we had saved a lot in order to remodel that home and achieve such a reality.
While living in that 1,100 square foot home, we had a list of five to ten houses in town we were willing to move for. To our surprise, one of them happened to come on the market in 2015. We went for it and finished remodeling it before having children!
We completely changed the layout, sold our old home, and settled…. four blocks away. We paid off this house in October of 2018.
While projecting our future expenses and possible FI number, we came across an interesting revelation. Even with our house paid off, it still costs a lot to live here!
Before diving into details, here is a rundown of the property according to the assessor's website for a little background:
Below is our cost breakdown.
We will work on driving these numbers down in the next few years, but there are several things we can’t control (as you will see).
Before having our child and experiencing last year’s rate hike, we only spent about $650 on electricity per year. This year we use the washing mashing a lot more because of cloth diapers. In general, having a baby makes us do laundry a lot more! We also leave more lights on at night and have been more relaxed about our electricity bill while tackling other issues.
Our local energy company has a monopoly on the area and is proposing a 23% increase! It will be difficult to push this number lower in the future.
We currently stay comfortable with the thermostat set at 67 degrees when we are home. We have it programmed to go down to 63 degrees throughout the day. Once again, we were harsher on this number when we didn’t have a child. Freezing our child just doesn’t seem like the cool trendy thing to do.
Property Tax: $3,946 (up $762 from last year)!
We live in an awesome town with a great school system. I work at this school, so it’s kind of like paying myself, right? By comparison, we could live in a local town where the property tax is half this amount, but our day to day experiences are important to us.
Home Insurance: $685 ($26 of which is optional earthquake coverage)
This is the only bill that went down this year! I’m not sure if it went down because we paid off the house or our credit score got better. Keep in mind, our roof is 20 years old and currently not covered on this policy. Also, we were “kicked off” a different policy when they found out how old our roof was. Given our experiences, shopping around for cheaper insurance doesn’t seem like an option until we have a new roof.
Trash Pickup: $168
This is $14 a month. There was a time when we didn’t pay it because we were “almost” zero waste and… well, the rest wasn’t pretty and involved a random dumpster. If we were go-getters, we would tackle this expense and share with a neighbor. However, given the awkwardness of trying to communicate we are trying to save $84 a year, it doesn’t seem worth it until we meet a neighbor with a similar mindset.
We pay this bill on a quarterly basis. We used to easily keep it below $400 per year in our more frugal years. A while back there was a rate hike. I forget exactly how much it was, but we noticed it right away, so I called in for the details at that time. We haven't started showering less, showering for a shorter amount of time, or doing less laundry. We also water a lot of plants all year round. We don't see this behavior changing in our future, although we try to be mindful and not unnecessarily wasteful.
Grand Total: $7,758.49
I can hear what some of you are thinking... Move back into a smaller house!!!
However, we love this house because of its amazing view. Plus, it's in a great neighborhood on a quiet street.
We are sold on the natural beauty inherent in its unique location. As a consequence, we won’t be moving anytime soon.
I can tell you one thing - we don’t plan to make it bigger. We do plan to make it nicer, however, and this involves… you guessed it...
Maintenance (2% of property value): $5,000
For most property owners, the act of putting aside 2% of the house's assessed value per year is a good general rule to follow.
Real Grand Total: $7,758.49 + 5,000.00 = $12,758.49
Considering we have a home built in the year 1900, I should probably think of the maintenance number as 3% just to be safe!
Keep in mind, this doesn’t include the cost of planned renovations or the savings we put aside for our new roof next summer.
In conclusion, it was eye-opening for us to look closer at these numbers while celebrating the act of paying off our house. It all adds up fast!
How about you? Do you know how much it will cost you to live in your home after the mortgage is gone? Are there elements you can predict will go up over time (like electricity, heat, and property tax)?