WE’VE CREATED A PROBLEM!
In a recent survey we conducted, we discovered most people are struggling with a budget. People know they need to save, young adults know it is easier to become financially free if they start saving as young as possible. There are a gazillion calculators online to tell people how much they need and at what rate of return; but they’re not interested. Ok, maybe a few of you are interested, but most of you are not. People weren’t interested in learning how to invest or how to research new opportunities for passive income in our survey. People wanted to know how to live on what they make. Why is this all they were focused on? Well, because it has gotten so damn hard to do.
It is not easy to afford life, even with a healthy salary. Let’s address housing costs today. The rising cost of housing applies to renters and home buyers alike. Home prices across the U.S. have risen more than 8% in 2017, according to Zillow.com, and will continue to rise more this year.1 Is your income rising at that pace?? If it is I want to know where you work!
The executive director of the housing authority in Dane County Wisconsin explained in an interview that “there is no county in the U.S. where you can work a minimum wage job and afford a two-bedroom apartment.”2 If you are working making $7.25 an hour at forty hours per week you are making about $1,257 per month before tax. Zillow.com shows the median rent in the U.S. at $1,690 per month. That executive director is right, even at $10 per hour you can’t do it or even at $15 per hour!
WHAT SHOULD WE BE SPENDING?
Most experts recommend that your cost of housing be no more than 28-30% of your pretax income and Americans are averaging significantly more today, closer to 37%. The amount we spend on housing is rising each year according to the U.S. Bureau of Labor Statistics.3 We must start creating demand for more modest living as consumers. The modest neighborhood is quickly disappearing. Homes in older areas are being torn down or remodeled into extravagant houses that take up an entire lot of land, new neighborhoods are more extravagant than ever, and reasonable options are left to exist only in undesired parts of town. When households receive increases in income many spend it right away and adjust to a new standard of living. Be careful of this type of instant gratification spending.
AVOID THE NEED FOR HOUSING PERFECTION
I’d like to challenge you to be the “millionaire next door” that no one knows about. Avoid the trap that others fall into. Falling into the extravagant home trap may lead to a retirement gap down the road. In other words, what you’ve spent today is gone tomorrow and then what will happen to you in your golden years if you have not prepared for it? With many pension systems in jeopardy, including the U.S. Social Security system, why would you want to depend on anyone else for your financial wellness?
Today, we need to start with a change in our mindset related to our housing expenses. We can create a demand for housing that is reasonable and provides a quality shelter for ourselves. Live minimally, demand less, and resist being trapped by the lifestyle that will take away your financial freedom.
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