Almost 5 years ago to the day, Jess and I bought our first home. At the time, it was a huge financial commitment.

I’ve described my initial fear when signing the paperwork so I’ll skip over that in this post. Looking back now, the decision to buy our home was one of the best financial decisions in our adult life.

As they say, hindsight is always 20-20.

While I was convinced that owning a home would be the right thing for us, it did not seem like it at first. Our housing expenses went up. We were spending an even higher percentage of our income on our housing costs.

We could afford to do this because we didn’t have any other debt. According to CFPB, the housing industry likes to see a debt-to-income ratio of less than 43% when approving a mortgage.

Your total monthly payments toward debt should not exceed 43% of your gross income. For example, if you make $60,000 annually, or $5,000 per month, the sum of your debt payments should not exceed $2,150.

Since we did not have any other debt like student loans, we were able to buy our home. We locked in a fixed payment for the next 30 years.

As our income has grown, our debt-to-income ratio has decreased and we’ve been able to fast track our financial independence journey.

To be clear, buying a home has helped us on our journey, but it is not the right decision for everyone. The important lesson we took away from this is to keep our housing costs low while our income has increased.

If you are looking to improve your financial situation, you should consider lowering your housing costs. Figuring out how to lower your housing costs will depend on your unique situation.

Why Lowering Housing Costs Are So Important

In the personal finance space, people often refer to housing, transportation, and food expenses as the “Big 3.” The name is quite intuitive, indicating that these three expenses make up a large portion of your expenses.

According to the Bureau of Labor Statistics (BLS), these three expense categories account for 62% of an average American household’s spending. Here’s a look at the breakdown of the 3 categories. For those interested, I’ve also included how our spending stacks up to the average American’s.

As you can see, housing is undeniably the largest category. It accounts for almost ⅓ of a household’s expenses. It makes sense why so many people focus on the big items.

The most efficient way to reduce your expenses is to look at the big categories. It is possible to spend a few hours reviewing your spending in these categories, make changes to your lifestyle, and reduce your spending.

Spending a few hours to optimize these expenses will also put you on a path to reach financial independence at an early age. This is where you get the most bang for your buck.

All three categories merit attention. Given that housing is the largest category (and accounts for almost ⅓ of the average American household’s spending), we are going to focus on this.

We’ve also already addressed lowering your food costs in other articles on this site, including How to Save Money on Food, How to Buy in Bulk, and When to Consider Ugly Food Delivery Services. I’ll plan to discuss lowering your transportation costs in a future post.

Don’t Settle for Short-Term and Generic Ways to Lower Housing Costs

While housing is the single largest expense category, it is also unique in the sense that it is more permanent than other categories.

Please note that I said MORE permanent, not permanent.

Lowering your housing costs may equate to relocating or downsizing your home. But that’s not going to be the case for everyone.

Making drastic changes to your housing situation is more disruptive than it is to alter your eating habits or change how you get to and from work. If you own a home, it is also more costly to swap homes.

When possible, it’s important to take a long-term approach to lower your housing costs. Don’t settle for short-term solutions, unless necessary for a temporary cash-flow concern.

It’s also important to align your decision with your values when making long-term decisions.

There is no one-size-fits-all solution to lowering housing costs. The last thing you want to do is to make a drastic change (e.g. like selling your home to buy and live in a tiny house) only to regret the decision later. You would then be forced to reverse the decision months or years later.

Every household requires unique housing features to support the lifestyle that it desires. I’m not talking about the features discussed on HGTV shows like granite countertops and walk-in closets. I’m talking about unique elements of a home. This includes location, proximity to public transportation, size, etc. that all contribute to your happiness.

To promote long-term solutions that are tailored to you, I’d like to propose a new framework for lowering your costs. My hope is that this framework will enable you to reflect on and discover what is most important to you.

Once you understand this, you will be able to identify the housing lifestyle that aligns with your values (or at the very least, identify boundaries within which you should operate), and then see what options are available to you.

Admittedly, this framework has its own limitations and is far from perfect. If you do have constructive feedback on how to improve it, please let me know in the comments below. I’m happy to review comments and update it to address any shortcomings.

Please also note that this framework is intentionally agnostic on the rent vs buy debate. This means that this framework should apply regardless of whether you rent or buy. Since this post is already 3500+ words as is, I’ve chosen to remove this subject and will address it in another post.

A Self-Reflective Framework to Lowering Housing Costs

“Where should I/we live?”

Answering this question is at the core of any attempt to lower housing costs. Unless you are reading this as a soon-to-be high school graduate, you’ve likely already answered this question.

If you are looking to lower your housing costs, you must answer this question again. Answering this question will confirm that your previous answer still aligns with your current values. It will also give you some boundaries within which to operate to lower your expenses.

This will help inform which options are available to you. In other words, if you enjoy living on the East Coast, relocating to Kansas for a lower cost of living is not likely going to be an option for you. If you enjoy walking and using public transportation, you likely won’t consider living in a rural area.

Deciding where to live is one of the biggest decisions you will make in your life. This impacts many aspects of your everyday life.

This includes who you will see on a regular basis, the weather you will experience, the job opportunities available to you, how much space you will have for leisure activities, what sort of time you will spend on maintenance, and so much more.

The reason that deciding where you will live is one of the biggest decisions is that it is a compilation of many smaller decisions. Whether you recognize it or not, your housing situation is a result of many smaller choices.

It is impossible to list out all the questions that one answers (either consciously or subconsciously) when deciding where to live. Instead, I’ve tried to identify the key questions that help influence your decision on where to live.

If not already obvious, I don’t mean to offer “Where should I/we live?” solely in a literal sense, suggesting the only way to answer this question is with some form of geography. Instead, this is a question that can be applied to many aspects of selecting your house: geography, size, proximity to other things, etc.

Please note – this framework also assumes that you would like to permanently live in the US. I’ve done this for the sake of simplicity. I may consider expanding it in the future to allow for alternative housing arrangements such as living overseas.

Question 1 – In which region/state do I want to live?

While some people do not take time to consider this, it is worth taking time to consider this fundamental question. Spend time thinking about if you are living in the ideal region or state. To help you answer this question, I’ve listed five considerations, grouped into two tiers of importance.

Primary Considerations:

1. Proximity to family/friends – Making friends as an adult is extremely difficult. My recommendation is to start in an area with a strong support network. This may be living close to family, or it could mean staying in your college town where many of your friends have also chosen to stay. I’d recommend using this item as a primary factor for determining which state or region to live in.
2. Climate – What is your ideal climate? How important is it to you? If it’s hard to articulate, here are some sample questions. Are you okay with experiencing all four seasons? Do you prefer it? Would you prefer to live in a warm climate all year, or to avoid extreme temperatures? Do you hate humidity? Your answers here will help determine where you would like to live and how important it is to answering question 1.
3. Job Opportunities – Depending on your career, some regions may provide more job opportunities than others. While Silicon Valley is notorious for being a tech hub, there are many other sectors and corresponding hubs. This is definitely true for working for a nonprofit. Boston is a hub for the nonprofit sector.

Secondary Considerations:

1. Taxes – Different states have different combinations of income, property, and sales taxes. If none of the factors above are a factor for you, you can consider state taxes as a way to optimize this part of your housing decision. Kiplinger has a great state tax resource to simplify this complex consideration.
2. Cost of Living – This is another secondary consideration. Although, don’t be fooled by thinking that you will save less money in an HCOL area.

Take a moment to rank the considerations against one another. An easy way to doing this is to score all five of these considerations on a scale of 1 (least important) to 5 (most important).

A few things may happen after this prioritization exercise.

• You may find that one or two of these considerations stand out as important to you, while the others don’t matter as much. You can use this to inform your decision. For example, if the climate is important to you, but nothing else matters. You may look to live in a preferred climate area, away from friends and family and where you might have to settle for a mediocre job.
• You may find that you don’t care that much about any of the primary considerations. If that’s the case, the secondary considerations are a great way to help you determine where to live. There are some who would argue against using state taxes as a way to determine where to live, but I say to base it off of what is most important to you. And if that doesn’t help narrow it down, why not use other information to help you decide?

Regardless of the outcome, allow this prioritization exercise to help you identify where (if at all) to optimize financially. Find out what matters the most and optimize the rest.

Question 2 – Would you prefer to live in an urban area, suburbs, or a rural area?

The next big decision that you have to make is the type of setting that you want to spend most of your time. This is often described in three distinct settings: urban, suburban, or rural. I see it more as a spectrum between urban and rural, with suburbs falling somewhere in the middle. Here are several considerations to simplify this decision.

Key Considerations:

• Plot of Land Size – One of the biggest factors of choosing where to live in this context is the size of the property. If you are one to prefer a large (1+ acre) plot of land, ask yourself if there is a specific purpose for which you need ample space? Or is it simply a desire for privacy?
• Walkability – Would you prefer to walk everywhere? Do you hate driving?
• Access to Public Transportation – If this is important to you, how far are you willing to walk to get there? 5 Mins? 10 mins? Keep in mind that the climate that you may have chosen in response to question 1 above may impact this answer.

You will want to perform the same prioritization exercise for these considerations. Keep in mind that while it is possible to prioritize all three, it will come at a cost. Generally speaking, the cost of your home will increase by trying to do all the above. If you can focus on one or two of the above, it will make it more affordable.

For us, we’ve prioritized access to public transportation. I am literally a stone’s throw away from our subway stop. This is driven by spending several years commuting in New Jersey rush hour traffic (pun intended).

The last thing I want to do with my time is to sit in bumper to bumper traffic. Our home has a modest walkability score as a result of being in Boston proper.

Since access to public transportation is so important to us, we’ve optimized the other considerations. Our lot is not that large and happened to buy a home in a walkable neighborhood. We’re ½ mile from many shops and stores.

Question 3 – How much (indoor) space do you need?

Last but not least is answering the question of how much space you need. I’ve discussed how the trends of square footage have increased in the past several decades as a nice reminder to only buy what you need.

Everyone will have different needs and it’s up to you to determine how much space that is for you and your household. Here are several considerations to help you choose.

Key Considerations:

• Family Size – How many members of the family live with you? Will this change anytime in the next 5-10 years? Don’t overcompensate one way or another that would require short-term transactional costs with moving to a different home.
• Privacy – Are you an introvert and need your alone time to recharge? If so, you might want to ensure that you have enough space in your home to allow for individual space. Are you willing to have roommates, or do you prefer to have your own space? Your needs for privacy will go a long way to determine how much space you should buy in your home.
• Hobbies / Activities – Do you take part in any hobbies or activities that need a lot of space (storage or active)? For example, if you enjoy kayaking, you may need a place to store a kayak.

It’s also important to rank the three questions against one another. If you have 1-2 priorities from each group, compare them to one another to determine what is most important to you. For example, is it more important for you to have space for your hobbies than access to public transportation?

Answering these questions and doing so in an intentional way will help you decide where to live, and also how you can lower your housing costs.

Example of How to Use This Framework

With these three questions, you can outline the boundaries from which you can look to lower your housing costs. We did not have this formally articulated when we bought our own home. But we worked through a similar decision-making matrix to identify our ideal housing situation.

After going through these questions, here’s how we would answer these questions:

• We’d prefer to live in the Northeastern part of the U.S., specifically in Boston. This is driven both by our love for the city as well as a strong job market for nonprofit professionals.
• Access to public transportation is important to us.
• While we don’t love cold, snowy winters, we do enjoy having all four seasons. But climate is not a priority for determining where we live. It’s a byproduct of other preferences.
• While we also enjoy spending time with family, we have prioritized our location over living near family. We’ve supplemented this with a strong friend group.
• Given our strong preference for Boston, we take a hit on MA state taxes. For us, it’s worth it to pay a little bit more in taxes to live in our preferred location.
• We also value our privacy and do not want to live with roommates or rent out a room on Airbnb.
• We are a small family of two (plus a dog). We don’t need a lot of space. We have ample basement storage for outdoor supplies. We enjoy camping, hiking, biking, etc.

As I said toward the beginning of this post, we have already lowered our housing expenses. We have optimized our housing situation based on our values. But for the sake of doing the exercise, below is what I have been to identify by answering the above questions.

As you can see below, I’ve been able to limit the number of options available to us. This allows us to focus on what is important to us and where else we can save.

If you are looking to reduce your housing costs, it’s likely that your priorities will be different. Some of these ways to lower housing costs may interest you.

Ways to Lower Housing Costs That Don’t Appeal or Apply to Us

• Relocating Out of State – We really enjoy Boston and it supplies us with a strong job market and proximity to friends, so we don’t want to move. We recognize that we could reduce our housing expenses and pay less in taxes if we relocated elsewhere. This might be a consideration for the future.
• Move to the Suburbs – We also enjoy our proximity to public transportation and our short commutes. We aren’t willing to trade longer commute time for lower housing costs.
• Less Space / Downsize – We currently live in a 1,000 Sq ft condo. While it feels like more than enough for our needs, there’s very little opportunity for us to downsize. The next step down would be a one-bedroom apartment or tiny home.
• House hacking / Roommates – Because we enjoy having a space of our own, we have no desire to rent out our second bedroom. Having a second bedroom and our own space is a nice luxury that we are willing to pay for right now. We are considering buying a duplex or triplex in the future. This would provide us a way to subsidize our housing costs with rental income.

Other Ways to Save Money on Housing

While it may seem like I am justifying reasons not to save money, it actually gives us a framework from which to operate. This eliminates any significant ways to save money on our housing costs. It narrows the scope and allows us to come up with alternative ways to save money on housing expenses, including:

• Refinancing Our Loan – We bought our home 5 years ago and interest rates have continued to decrease. They have not decreased enough to justify refinancing, but this is an option for us in the future.
• DIY Projects – Another housing expense for us will be ongoing maintenance expenses. As things pop up, we can continue to complete these projects ourselves saving a lot of money on repairs and ongoing maintenance. Few people in our area mow their own yard, but this is something we’ve committed to doing to lower our costs.
• Shop Insurance – Another option available to us is to reduce our insurance costs. We could do this by shopping our existing plan or increasing our deductibles.

This list isn’t exhaustive but provides us with helpful options. The above framework limits are options. It allows us to more easily identify practical solutions to lower housing costs.

My intent is not to provide an exhaustive list of ways to lower your housing costs. Instead, I hope that this framework gives you the tools to identify them for yourself.

What questions do you think are missing in the framework above? Are there other ways you’ve found to lower your housing costs?