This is the smart way.
- Warren Buffett has lived in the same house all his life, although he can clearly afford a more expensive home.
- Keeping your housing costs low can benefit you financially in many ways.
We are often told to keep our housing costs below 30% of our income or even less. The logic is that meeting this threshold reduces the likelihood that we will be late in paying bills and end up with unhealthy debt. And to be clear, a mortgage is considered healthy debt – as long as the loan amount is reasonable considering your income.
However, investment giant Warren Buffett does not spend close to 30% of his income on housing. And it’s not just because he’s a multi-billionaire. Rather, Warren Buffett has always kept his housing costs at an acceptable level. And if you’re thinking about selling your home right now and making it bigger, you might want to follow Buffett’s lead and rethink that choice instead.
The advantage of lower housing costs
Warren Buffett has lived in the same house all his life – a house he bought in 1958 for $31,500, equivalent to about $250,000 in today’s dollars. It is now clear that the point is not that Buffett has yet to increase his staff due to a lack of money. Frankly, Buffett is rich enough to buy an entire city if he wanted to. Rather, Buffett never felt the need to buy a luxury home. And that’s the lesson to be learned from it.
Many people buy starter houses with the intention of increasing their size in the future. And there is nothing wrong with this approach, especially if you want to buy a bigger house because your family has grown and you need more space.
But before you sell your home and expand it or purchase a more expensive property, you may be asking yourself if you really need to go down that path, or if you can handle a smaller, less expensive home well enough. And if the answer is yes, then it really is worth staying put.
The less money you spend on housing, the more you have left for other purposes. It is so simple.
So let’s say your big goal is to retire early. If you currently spend 20% of your income on housing, an increase in size could mean increasing that percentage to 30%. But if you don’t increase the size, you can take the money you don’t spend on housing and use it to add to your retirement savings to eventually reach your goal.
Likewise, maybe you are the type of person who really loves to travel. If you lower your housing costs, it could free up more money to get out and explore the world.
Don’t rush to sell
You may decide that selling your home and moving to a larger one will improve your quality of life. And if so, you may be better off paying more for another home.
But before you rush into that decision, consider whether you can do the work from home for a lower price. If Warren Buffett, with all his billions, manages to avoid the temptation to expand the area, then it is reasonable to assume that many homeowners may follow the same path.
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