Either way, it's a different life, with new possibilities.
Either way, you've made a dramatic change in your cost of living by pulling two of the biggest levers, housing and transportation.
You can understand this by taking a close look at the Consumer Price Index. The famous Bureau of Labor Statistics index that purports to track the broad cost of living for urban consumers lists housing as 40.9 percent of our living expenses. Transportation takes another 17.3 percent. That's a total of 58.2 percent.
We can disagree with those figures, of course. Many do.
But whatever the carping, housing and transportation remain large expenses for most Americans. Reduce the amount of our net worth or income committed to support our shelter and we've found a way to 'live lite.' We can enjoy a new wealth with less money.
This isn't new. The traditional way to do it is to downsize your conventional home, preferably by moving to an area with a lower cost of living. With the national median home resale price now nudging $180,000, the easy way is to move from an area where housing is expensive to an area where housing is cheap. Sell a phone booth (with or without plumbing) in California and you can do right well by moving to Utah, Colorado, or Arizona--- as many retiring Californians do.
The math is simple. I've demonstrated it in other columns. If you own your $180,000 house free and clear, you can sell it. Then you buy a house for half as much elsewhere. This leaves you with $90,000 to invest.
The operating expenses for a typical home run about 5 percent of its value. In low real estate tax states--- such as Florida, New Mexico, Arizona, and Nevada--- home operating costs can be 4 percent or less. (In New Mexico, for example, housing prices are high and expenses are low. As a consequence, some houses cost less than 2 percent of value to operate.)
If your $90,000 replacement house costs 5 percent a year to operate, your new $90,000 investment fund could earn almost enough money to pay the bills! Presto, your largest single living expense is covered. The easy way to do this is by selling a median priced home in Los Angeles ($382,200) and buying a home for $191,100 anywhere you can find it.
That's a lot of places.
But suppose you don't live in an area of high home values?
No problem. Think RV.
Here's the upscale way to do it. Sell a national median priced home and you'll immediately escape about $9,000 a year of annual expenses. You'll also have nearly $180,000 in cash. That's enough to buy a manufactured home in Monte Vista for $60,000. The taxes will be low. The insurance will be low. The utilities will be low. And your land rent buys you a defacto country club membership. Your net expense savings will probably run $2,000 a year.
You'll also have nearly $120,000 left over. As with traditional downsizing, it will help cover the bills.
But won't you miss the price appreciation of a conventional home?
Probably not. If you invest the leftover cash in a balanced account and let it grow--- just as the money invested in land underneath a house is invested--- a comparison model I've built indicates that you'll come out ahead after about 10 years. This will happen in spite of the depreciation of the manufactured home.
There's also the tribal way, Brian's way. Sell your national median home and lose the $9,000 in annual operating expenses. Roam with your new RV. Or settle in with a park model. Either way, your new annual operating expenses will be well under $5,000. That's a $4,000 annual savings. And you can commit as little as $30,000 of your home sale proceeds. That leaves nearly $150,000 to invest for income.
On the web:
Sunday, April 11, 2004:RV Park Can Be A Vision
Tuesday, April 13, 2004: Unlocking the Secret to An RV Retirement http://www.dallasnews.com/sharedcontent/dws/bus/scottburns/columns/2004/stories/041304dnbusburns.27b6.html
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