You’ve got to work to succeed. – Owner of a Lonely Heart Song and Lyrics by Yes

If you crisscross the country, you will see home prices are highly inflated. Homes values have gone up, but so too have prices.

I look to my left and to my right, but I don’t really see any new starter homes being built.

How is a family just starting out supposed to find affordable housing without any affordable homes?

You need to keep your fixed expenses low, so that you can keep more of your money in your pocket.

Remember the future is more expensive. Things do not go down in price. Prices go up.

I urge you to reconsider purchasing anything that will mean paying a high fixed amount over a long period of time such as a mortgage.

High fixed expenses can cause folks to go bankrupt.

If you do an online search, you can lookup bankrupt celebrities and see my point.

When going through their financial records and bank statements you see the glaring red flags right off the bat.

Here is a typical list of items I see when high profile people file for bankruptcy:

• The newest or latest Range Rover
• Large wardrobes and expensive designer suits or furniture
• Huge credit card bills
• Expensive foreign car leases
• Tax liens
• Medical debt
• Back mortgage payments
• Multiple child support or alimony payments
• Back taxes owed to Uncle Sam

There is one-line item I would like to pull out in particular and that is the mortgage payment.

Let’s say hypothetically speaking, one was to bring in $70,000 a year, but was once pulling in $520,000. That’s a pretty huge drop in income right there. Would signify some belt tightening needs to be done right?

Nope.

Instead folks were continuing to live in the same neighborhood and even in the same house. In addition, driving fancy cars, and pretty much were living as if there had been no drop in income.

That is no way to do your finances.

You have to respect money. You cannot spend before you earn. As the song goes in the lyrics stated above, you’ve got to work to succeed.

You can’t continue to have the trappings of success, if you truly can’t afford them.

So, let’s discuss buying less home in order to be wealthier.

HOME PRICES ARE THROUGH THE ROOF

According to Zillow.com, the median home price in Washington DC is $575, 800.

If you have a 5% interest rate and a 30-year mortgage, that means you will owe $3,091 a month. And that’s just for the bricks! You have not paid property taxes, closing costs, home warranty, or utilities.

Adding in homeowner’s insurance and property tax, you are looking at $3,419 a month.

The Mortgage affordability rule states you should spend no more than 36 percent of your gross income on all your total debt, and this includes mortgages.

Based on the numbers, to purchase a home at this price point, you would need to bring in over $12k a month. That’s $150k a year. And this amount includes no down payment no debt except a mortgage.

Who doesn’t have a car payment these days? However, make anything less than that and its sorry game over.

Let’s not forget that this is for a property in Washington DC. There are tons of other metropolitan areas where to pay to play is even more egregious.

What a home in swanky parts of New York, California, Connecticut, Florida, Colorado, or Texas? Well, it’ll cost you.

Homes in gated communities can be well into the seven figure range.

If we take three times $575,800, that gives us $1,727,400. A $1.7M home will cost you approximately $10k per month, which is $120k a year and $10k of that goes just to property taxes.

In a decade you would have paid $120k for property taxes, just for you to sit on your couch in your living room .

That means a $3.5M home would cost the homeowner $250k over 10 years.

That’s right. A quarter of a mil. Just because the house is standing.

PROPERTY TAXES ARE FOREVER

Oh and by the way, did I mention that property taxes are forever?

You don’t ever stop paying it.

That means you will always have some cost associated with owning a home, even if everything inside of it and the dwelling itself is paid for.

Wishing you could buy a manse like Hova and Beyoncé. Well, be prepared to shell out big bucks cause the property bill alone is massive.

It was reported they bought an $88M mansion in California. A pricey piece of property indeed. A ritzy neighborhood for sure and a jaw-dropping beauty of a home.

In sunny California, the property tax rate is composed of three types of levies: general tax levy, voter approved bond indebtedness repayment, and special district assessments. The general tax levy was frozen by Proposition 13 at 1 percent of assessed property value.

According to Joel Fox of The Sacramento Bee, “Taxes haven’t exactly disappeared under Proposition 13. Property tax revenue is up 1,000% since 1978 and is growing faster than personal income. However, individual taxpayers are protected by Prop. 13, locking in property taxes when they buy their home and limiting future increases.

So, let’s get down to the bottom-line. Property taxes on an $88 million-dollar home at 1% is $880,000 dollars! That is for one year. I shudder to think about the cost of upkeep.

Although, this is obviously not what the average American homeowner is paying in property taxes, it does illustrate that paying these taxes can be mighty expensive. Especially, if you are living on a fixed income, which many Americans one day likely will be.

HOW MUCH CAN YOU SAVE

What can you do instead of buying a huge property?

Glad you asked.

You can buy less home and save money.

This will effectively allow you to increase the amount of money you save.

For example, just buying a property that is $100,000 cheaper could allow you to save $584 a month in mortgage payments and property taxes.

Investing that $584 over 30 years at an 8% rate of return could net you $877,423.

You would be giving up close to $900k in wealth to live in a neighborhood that ends in the name of Hills instead of Heights.

Basically, you could save a small fortune.

HOW MUCH GREENBACKS MAGNET SAVES

I decided to buy a smaller home than most friends and family members I know.

In one case, I paid $500k less than my peers or their families. In another, I paid less than $700k!

Just figured less home would mean less to do for maintenance, lower utilities, and more freedom because less time is needed to manage my household.

I was right.

It is way less stress to care for a smaller versus a larger home.

You have less stuff because you have less space.

Either you throw out and donate crap or get creative in storing it. I prefer to come up with less storage solutions and just stop buying stuff.

It has paid off handsomely.

I gave my savings amount in a post I did called How Millennial Money inspired me to save $13,333.06 a year. Well, now I’m giving you the visuals. I highlighted in red what I’m saving now.

GBM savings growth chart 

After, I started ramping up my savings it just took off. I am on track to save 1,000% more income than I did in 2015. Not too shabby.

I say buy less home, build more wealth.