Where to live if you want to retire in your 30s or 40s
If you want to reach financial independence and retire early, be warned:
Setting aside your job, where you live could be the single biggest factor that determines how quickly you can reach your goals.
Let’s face it. Us Brits are utterly obsessed with property. An Englishman’s home is his castle, as the saying goes, but if you’re not careful it might just become your prison.
It’s received wisdom that you should move up ‘the property ladder’ as you progress in your career and your income rises. To an extent, this notion is grounded in sound financial sense; but for the aspiring FI, a mortgage on your home can turn into a dead weight that hangs around your neck.
Even worse, owning a big, expensive home means having a lot of capital tied up that could otherwise be put to work to provide a passive income.
The only ‘good’ debt?
Mortgages are often seen as the only ‘good’ kind of debt, as they are generally used to finance the purchase of a ‘real’ asset – property – that is expected to go up in value at least in line with prices (and if history is anything to go by, probably by a lot more).
But here we must question what we define as an asset. Personally, as an aspiring FI, I see an asset as something that will produce a passive income. Whilst my home might be very valuable, it probably isn’t going to furnish me with an income unless I take in a lodger; in fact, from the perspective of an aspiring FI, a home is more likely to be considered a liability, as it comes with costs attached such as mortgage, bills, maintenance etc.
There’s a reason why the word mortgage derives from the French for “death pledge”. Take on too much mortgage debt and you can literally sign your life away. You also have to question your motives if you constantly seek a bigger house. Do you really need all that extra space or is this really a vanity project to keep up with the Joneses?
Location, location, location!
But everyone needs a place to live, and unless we want to rent, the obvious option for most of us is a mortgage.
Here’s my story…
For most of my twenties I lived at my parents’ house to save money. But when I hit 30, I decided it was time to move out. I’d saved up a sizeable deposit and by that time I was on a half-decent income, so I took out a mortgage and took the plunge. The monthly payments were equivalent to around 20% of my after-tax income, so I wasn’t overstretching myself by any means.
But with a property of my own to look after, my expenses shot through the roof! So I decided I needed to make the house work for me instead of the other way around. Having bought in an area that was close to the town centre with a thriving community of mature students looking for house shares, I took in two lodgers, which generated almost enough income to cover the mortgage every month. What’s more, I was able to generate this income tax-free under the Rent a Room Scheme.
But then, in the following year, came a second major change in my life – I met the future Mrs Millionaire Marathon. My expenses started to balloon again – as they inevitably do when you meet the love of your life – and we eventually decided to move in to her place together to cut costs, and my place became our first rental property. Again, the fact that I’d done my homework and bought close to the town centre in a neighbourhood that was attractive to young professionals mean that the place was snapped up in no time.
Top tips for the aspiring FI
- Live with your parents for as long as you (or they!) can stomach it. This is a great way to get your net worth growing fast while you’re in your twenties. Personally, I didn’t feel comfortable with the idea of living at home rent-free, so I paid board. But I know many people who’ve never paid their mum and dad a penny to live at home.
- Don’t take on too much debt. Make sure your mortgage payments don’t eat into your ability to build up your stash. When I was living alone, my mortgage came to around 20% of my after-tax income. I found that I was still able to achieve a savings rate of around 50% with this level of mortgage, but don’t forget to think about what happens if interest rates rise!
- Try house-shares. If you must move out, renting a room in a house-share is a lot cheaper than renting an entire apartment or house. It can also be great fun, especially when you’re in your 20s.
- Take in a lodger or two. This is a great way to help cover the costs when you buy your first place. You can also meet some really interesting people. One of my lodgers was an engineer from Colombia. He became a really good friend and we still keep in touch despite the fact that he’s now moved back to Colombia.
- Live close to where you work – or indeed, work where you live. We recently worked out that my fiancée pays almost £1,500 a year just to get to work and back once petrol and parking charges are taken into account. She’s pushing for more work at home days, but that’s still a huge cost just for the privilege of being at work.
- Let the Joneses keep up with themselves. A bigger house won’t make you happier; it’ll just cost more to run and leave more space to fill with stuff you don’t need.