Wednesday, March 14, 2012

Living Well on $25k or Less: Housing

Many young people are graduating from college and finding that they are not getting what they were promised. They thought once they graduated, they'd find meaningful, well-paying jobs with good benefits. Instead, many of them are working as baristas, servers and cashiers. At my last job, I knew a guy with a doctorate who was washing dishes. Despite a salary much lower than anticipated, student loans still have to be repaid and at least a little bit of money left over for rent and food.

If you are in this situation, it may be frustrating and more than a little scary. Fortunately, there are many ways you can cut your expenses without completely eliminating your quality of life. For the last several years, I've been living on a lower income (between $15k-25k/yr), but for the most part, I've still been able to eat good food, go out, and even save money for my goals.

Over the next few months, I'll share my experiences and tips from others on living well on less than $25,000 a year. This week, I'll talk about housing expenses.

First, limit your accumulation of "stuff." The more things you have the bigger a home you must have. If you have several thousand books, you'll need at least an extra bedroom to house just that collection. If you can keep your number of possessions low, you can rent a smaller apartment, perhaps a studio or one-bedroom apartment instead of a two-bedroom townhouse. This will save you a lot over the course of a year, plus you'll save money from not shopping.

Live near your favorite neighborhood instead of in it. A few years ago, I found a neighborhood in Chicago that I really enjoyed. It had lots of coffee houses and galleries and was just wonderful. It was also expensive. By living a little further north in a slightly less fashionable neighborhood, I was able to save a few hundred a month in rent. It was still close enough that I could walk there in fifteen minutes. That minor inconvenience was more than compensated by the lower costs.

Living with a roommate is a common way to cut expenses. You can split a two-bedroom apartment with one other person or rent a house with several others and save big bucks over renting a one- or two-bedroom apartment yourself. You'll also save on internet, cable, heat, electric and water. Find someone compatible and responsible, and make sure you both sign a written agreement.

Work for rent. While you might have to search to find such a situation, you may be able to find an opportunity to work in exchange for free or discounted rent. A friend of mine lives in an apartment at a car dealership. He keeps an eye on the place overnight in exchange for free rent.

You can be a live-in nanny or housekeeper and may get a small salary in addition to free housing. Some people are companions for the disabled or seniors who aren't ready for a nursing home but need a little help with cooking and cleaning. House sitting is great for transient types. For singles or couples, managing or maintaining an apartment complex usually provides free rent in exchange for basic care of the property and showing units occasionally. During the early years before children and lots of other commitments, you could really save up a lot of money (or pay down student loans) if you didn't have to pay any rent.

Communal living is great for those who like living with others of common goals and ideology. You can become completely self-sufficient or work on an organic farm. You'll have to work for the good of the community, but you'll have free housing, possibly free food and the opportunity to build relationships with like-minded people.

Rebound. Okay, this one may temporarily reduce your quality of life. Living with mom and dad for a short period of time may be a great way to set a strong foundation for your future. For the couple years after I graduated from high school, my parents let me stay with them rent-free so I could get my life together. I was working a full-time job  and banking 65% of my gross pay. I started funding my retirement accounts, paid for school while I was attending and built up a 6-month emergency fund. To help the family, I did most of the grocery shopping and cooked several meals a week in addition to helping clean and maintain the property. If you decide to go with this approach, make sure everyone involved is on the same page. Ideally, get it in writing just to avoid drama. This situation works best if it is on a short-term basis, perhaps for 6 months so you can build up a 20% down payment for a house.

Live in a cheaper city. Living in a city like Chicago or New York is wonderful, but pricey. Paying 60-75% of your pay towards rent gets old really quick. A few years ago, I moved from Chicago to a cheaper city where the rents are around 2/3 of the price, and the houses are even cheaper. I've been able to save up money for a house rather quickly. I'd love to live in Chicago again, but for now, I'm enjoying building up my savings account.

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