The Big Home American Dream
One of the biggest financial mistakes that I see time after time from friends, co-workers, and family is buying a big house.
Human beings are dreamers and planners. We like to think ahead. Plan for the future.
So instead of buying a house for our current needs, most of us buy the house we think will meet our future needs. Isn’t the traditional “American dream” to buy a big home, fill it with a spouse, 2-3 kids, the family pet, and leave room to entertain a big crowd once or twice a year, after all?
While thinking ahead may seem smart or even financially strategic.
However, the outcome is usually this:
- We pay more for the actual home by tens, sometimes hundreds of thousands.
- We pay more for the interest to finance the home by tens, sometimes hundreds of thousands.
- We pay more every year on the taxes that result from having a home that has a higher tax assessment.
- We pay more every year on home insurance premiums.
- We pay more every year to heat and cool the home.
- We pay more for all of the new furniture and decor to fill all of the lonely, empty, dust-collecting room we don’t use.
- We pay more for renovations and upgrades.
- We pay more for maintenance.
- We encourage home builders to continue to build more giant homes, with huge environmental consequences.
- We spend more time cleaning all of it.
- We overwork ourselves to pay for all of this.
Does that sound more like a dream or nightmare?
I Fell Into the Big House Trap
On my first home purchase, I fell in to this trap. I was newly graduated, newly engaged, newly employed, and I thought to myself:
“Degree? Check. Job? Check. Wife? Check. What’s next? Ah yes, the house. But not just any house. The house that I’ll live in for the next 15-20 years because I won’t change jobs and will SURELY need room to house 2 kids someday.”
No ill intent. Just preparing for the future. Can you blame me? Can you blame anyone who does this when it is the go-to model encouraged by the media, industry, peers, and the tends of millions of homes we are surrounded by?
So I went out and bought a 1945 two-story, 1,500 square foot, 3-bedroom home with a basement and garage (ironically, the average home size in the United States for new builds is 2,392 square feet today, it was 1,660 back when the Census started recording it in 1973 – 44% growth!). I then bought a bunch of crap to fill it. And….. most of the home sat there, unused.
Then I Learned an Important Lesson
Three years, no kids, hundreds of unused square feet, and a truck full of new furniture later, I got a new job and we moved out. Buying the big home was one of my biggest financial mistakes.
Instead of buying a bigger home, we then did something odd. We bought a smaller home. A 50% smaller home. And a few years after that, I started thinking that I wanted to go even smaller, tiny home smaller.
An important lesson was learned.
Let me save you pain of learning the same pricey lesson, and recommend this:
Rent or buy the smallest space you (not your stuff – that can always be sold) can comfortably live in at the present time.
That may be the most impactful piece of personal finance advice I can offer anyone.
The thing is, you never know what you’ll encounter in life. Relationships end, your desire or ability to raise children might disappear, you may move multiple times, especially early on in your career. Life happens. And if you absolutely NEED more space later on, it can always be had. Or you can rent storage for much cheaper.
Besides, that old American Dream of buying a big house? It is dying a quick death.
Big House Discussion:
- Have you bought a big house and learned the same lesson I did?
- If you plan on buying a big house, why?
- What is the ideal square footage living situation for you?
I am 27 and getting married soon to my boyfriend of 5 years. I don’t want a big house. I want a small house with gadgets and a back yard to grow veggies.
I find it ridiculous that everyone thinks they deserve and should live in a big home. That’s stupid! Right now, we don’t know where we will be geographically in 3 years. So, why would I buy a big house?
Veggies and gadgets are good. Just don’t get plant gadgets in your garden or try to load an app on a veggie.
A home is the ultimate status symbol, not only to show your neighbors, friends, and family, but to measure your own success.
Several years ago someone at work had just gotten married so she moved into her husband’s apartment. There was enough room but they wanted to buy a house “to build equity” I suggested a condo about the same size as their apartment. She replied that they would never buy something that small. They bought a house which is a combination of a place to live and the largest non-income producing asset they own. For the same money they could have bought a duplex and let someone else help pay for the building.
My friends and I are in our mid-late 20s. One trend I have seen is that we seem to be trying to catch up to our parents. That’s really the only way I can think of to describe it… they buy this big new house, very comparable to their parent’s house- 2200 square feet, 3-4 bed, 2-3 bath, as newlyweds (or even some singles do this).
What we 20somethings fail to realize is that our parents have worked 30 years to get where they are financially, and have a big house. But to try to “catch” our parents status a couple years out of college is a big financial mistake. Once the debt cycle gets started it’s very hard to get out.
Completely agree on the “catching up to parents” point. I almost included it in the post.
The reality is the more, more, more standard setting was a big component of the housing bust – too many people could not pay for too many mortgages on homes that were too big.
I just purchased my first home last August, and while I did buy a much larger home and then I needed (2000 sqft, 3 bed 2 bath), I bought the house that made me feel the most comfortable. I also went into it knowing that I would be renting out one or two of the spare bedrooms. Knowing this, I wanted to make sure that the place would accommodate three different people with potentially three very different personalities. To save on money though, I found a home that was a foreclosure property, and paid $90,000 less than what the house originally sold for only five years prior. I did not have to sacrifice what I wanted, and still paid very good price. the house meets all of my needs, and the needs of my two tenets. They are paying almost 70% of my mortgage, and two thirds of my utility bills.
foreclosure or not, you paid $90k less than the previous buyer, because its worth $90k less
if the house was worth more, another person would have paid more or a broker would have bought it since it was ‘undervalued’
it was not undervalued, it was worth what you paid
it frustrates me when people think they are getting a “deal” because it was cheaper before … no, you aren’t , you are paying what its worth, if you need to sell it tommorow, you will be selling it back for what you paid or less after fees
We purchased our house in late 2010 and, similar to Greg, it is way too big for the two of us (4 bedrooms, 2 lounges, 2 bathrooms, office, gallery).
I don’t see it as a financial mistake, however, for several reasons:
a) we paid $45.000 less than the family who purchased it in 2008
b) we are renting out the downstairs, where the ‘roomies’ have their own bathroom and lounge and don’t bother us upstairs (we share the kitchen, though). Combined this provides us with an income that pays us close to 64% of the minimum mortgage
c) we always had roomies and are used to it. Depending on the people you live with, this can even be fun and some of our best friends are former roomies.
d) because of the additional income, we pay way more than the minimum mortgage and are (theoretically and fingers crossed) in a position, where we can pay off the mortgage in 12 years (OK, 12 years and 9 months according to the latest calculations)
e)the house is designed in a way that we could (with some building work and consent) seal off the lower level to create a legal flat downstairs with separate entrances and all (would need to convert a room to a kitchen)
f) my partner works from home 2 days per week and makes good use of the office
g) we have lived in the same city for 12 years already and have no intention to move (unless we absolutely have to)
h) last not least, because of the additional income, we are not too worried about one of us losing a job. While this would be an inconvenience and affect the timeline of being mortgage free it wouldn’t end in financial disaster.
I therefore believe the big house has bought us some freedom.
BTW: My advice to anyone who cares: When buying a house (big or small) save for a sufficient deposit, forget about ‘blue ribbon’ neighbourhoods, find a neighbourhood where you feel comfortable and connected, assume 10% interest overall, pay down the mortgage as if interest was 10% (or more), and if you can’t afford it, keep renting! It’s only a house, after all.
Wow, so glad I read this.
My wife and I live in a one bedroom apartment with our 8 month old son. I am a newly minted solo attorney and not yet earning the income I need. The funny thing is that even if I was, we would probably stay in this one bedroom for a few more years.
When it is time to move out, we plan on getting a small home with a bigger yard. We want a smaller home for the financial benefit, but also for the familial benefit. We don’t want to be out of earshot or out of sight from each other when we are home. We enjoy spending time together as a family and a smaller home promotes that togetherness. This is often overlooked. A large home with a lot of empty space promotes that same empty space between its inhabitants.
that is a great point my husband and I have a one bedroom 900 square foot home and we are considering having children in the next 1 to 2 years and in general people seem to think we should have a seperate bedroom for the baby but a larger home has several finacial drawbacks and as you point out possibly some emtional ones too
Our first home purchase will be in the 1500-2000 square foot range, but we’ll be renting out bedrooms until we have a large enough family to fill it.
I’ll be buying my first home soon and I’m currently debating the size of the house and how much I want to spend. I’m 24 and live with my girlfriend and giant dog monster. I feel like something in the 1300-1700 sq/ft range seems about right.
I kind of feel like I would like a yard so my mornings no longer consist of taking my pupster outside for a walk first thing in the morning. I feel like that’s kind of pushing me into houses in the 1000+ sq/ft range. I also can do a lot of work from home if I wanted so the size might be nice. Then again, anything over 2000 seems excessive.
Right now I’m also juggling with the idea of how much I should spend on a house. Also if I could avoid a mortgage and buy a house in cash, should I do it, or get the mortgage and pay it back quickly? I’m definitely more drawn to no debt.
Here’s a test that might give some idea about how much you need. If you were going to rent, what would you rent? Before you consider paying cash or quickly paying down the mortgage, consider how much liquidity you have in case of emergency.
With prices in the basement, this might be a time to think of buying larger, but in terms of larger meaning duplex or 4plex so that you do not buy a large amount of non-performing asset.
24 is a good age to buy property as a landlord. A 20 year mortgage means that by age 44 your tenants will have bought the property for you and will then pay for your children’s college. After that they will build a significant part of your retirement.
I like this article and the subject interests me. Frugality regarding living spaces seems quite empowering to me. A house is a consumer of resources of all kinds: time, money, natural resources. It is also a responsibility.
Please tell me more about you regarding this topic. I’m looking for some inspiration.
-What is your ideal living space as you live in a couple? (and number of rooms)
-What would be your ideal living space (and no. of rooms) if you had 1 child or 2 children?
-If you were working from home, were would your work place be? Would you need a dedicated room or could you manage to work in some part of an existing room (and what room would that be)?
On things you have no control over or on things you do. There was a little pomegranate flavor in here too, just enough to
give it a little something special – not much, but a little.
Former Olympic decathlete Bruce Jenner says Jamaican sprint sensation Usain Bolt is delusional if he thinks he’s the greatest athlete of all time because he’s
just not well-rounded enough.