theFIREstarter

This post is part of a series called “Start your FIRE”. I wanted to lay down a basic framework for new readers of the blog to read through, just in case they’ve never read a blog about Personal Finance before, or are just getting to grips with this idea of Financial Independence and could do with some pointers in how to go about setting up ones life to achieve this. Whereas my first few posts were looking into the possibilities of FIRE available to us in the UK, think of this as the nuts and bolts of how to start “doing it”.

One key factor for making your life and financial matters as efficient as possible is choosing the right place to live, that is a sensibly priced and size house, in the right location.

A very large thing is made on blogs that are based in the land of the gas guzzler (the USA) about finding a location that is both close to work and local amenities, which naturally cuts down or eliminates car journeys entirely and therefore saves what could amount to large sum of money. Another thing is that you should live in a much smaller house than the average person would usually consider. While this is obviously still solid advice for us folk in the UK and Europe, I think we have it easier in this regard simply due to the fact that most of our population centres were founded pre-combustion engine invention, so they tend to be far more closely packed. That and the fact that we are starting to get pretty short on space on this little island of ours, it is no wonder that we tend to build much smaller dwellings. So the pool of suitably located and smaller sized houses is almost certainly a lot larger over here. One negative for us home seekers in the UK is actually being able to afford the damn things. Prices are substantially higher, coming in at a hefty £242, 415 on average, compared with just $152,000 in the US – £95,244 at the time of writing. Both countries are subject to large regional variations of course, but I think it’s fair to say that we as a nation have to spend more of our hard-earned on housing costs, than our friendly neighbours across the pond.

Key details to consider

Here is a list of things I would include in your calculations when looking at potential a house and location:

1. Price – in other words, the cost of Mortgage or Rent for 99% of people.
2. Estimated Council tax and other fixed monthly costs (ground rent, service fees)
3. Proximity to where you work, or else proximity to decent public transport links
4. Proximity to at least one decent grocery shop (cheap prices with a good selection of fresh and healthy food*)
5. Proximity to other local amenities – the town centre, parks, library, or any other places you might usually frequent regularly.
6. Estimated Utilities and heating / cooling costs – determined by size, insulation, number and type of windows, and whether the property has good exposure to the sun (South facing walls for Northern hemisphere homes).

Running the numbers

As with nearly all things in the World of personal finance, doing some basic calculations up front can pay off huge dividends in the long run, and when choosing somewhere to live this is no different. I would recommend working things into a monthly expenses framework in the first instance; you could then extrapolate these into 10 year or “mortgage lifetime” if you wanted to give yourself an idea of those costs, and no doubt give yourself a bit of a fright at the same time.

Delving into this list further then, points 1 and 2 should be very easy to work out and require no further explanation.

Points 3, 4 and 5 are simply a ticklist of “wants” – just make sure you can walk to any of the things you regularly might otherwise nip in the car to get to and you can just include the lovely symetrically rounded figure of “0” into your calculations here. If not then you must estimate the costs of running about in the motor, or you could just get a bike of course.

The proximity to work factor is not quite as simple as some other US based blogs make out, where the advice tends to simply be:

“live close to work so you can bike or walk”

This does not take into account the huge variation in house prices even over short distances. An example (let’s call him Jeff) of this would be if Jeff worked in London, let’s say because he had a well salaried job that he couldn’t get elsewhere. Two incredibly simplified housing options Jeff might have to choose from are:

• Option A – Rent a flat in London for £1000 per month, and walk/cycle to work
• Option B – Rent a flat in a surrounding county with good public transport links for £500 and spend £250 on transport costs.

Option B would obviously be a much better choice given the extra £250 in Jeff’s back bin** each month, which equates to a not insignificant three grand a year. The numbers other specific examples might just as well be reversed, but the key is obviously to substitute your numbers and do the maths for your own situation.

There is also a third option to consider from the example above which is: Get a lower paying job in a cheaper place to live. If Jeff is in the 40% tax bracket he could move into the house in Option B and get a local job that pays up to approximately £5160 less. This is due to Jeff having to pay the tax and national insurance contributions on the money earnt to buy him the £3000 worth of transport costs, if he sticks with the job in London. So this is another factor you must include in your calculations and don’t forget to include the tax: this makes a big difference as we’ve highlighted here!

Point 6 is something I would imagine most people never even realise it is something they might, let alone should, consider (we certainly didn’t when buying our first place anyway!) but is actually very important. A South facing wall with decent exposure to the sun all day (i.e: no other buildings blocking the sunlight) might save you hundreds of pounds on your heating bills each year. Conversely in a hotter climate, this might be something you’d wish to avoid if possible. In terms of electricity bills, the number of lights installed in the house might even be a factor to consider, and also whether the heating system is powered by electricity – again this is something to avoid as Gas heating works out cheaper and is also more environmentally more efficient (when compared with electricity that has been produced with a gas plant, which is pretty obvious when you think about it). If you really had your Green Hat on you might sign up with renewable energy electricity only plus electric heating, in the knowledge that this will cost you a fair bit more.

We haven’t covered every last detail here, there are whole websites and forums out there dedicated to this subject, but this should give you a good headstart on what you need to consider when choosing a place to live. It is not a decision that can be taken lightly and certainly not one to be rushed as it is one of the biggest factors in determining your savings rate, and therefore your path to wealth and financial freedom. And if anyone has any inspiring “moving stories” it would be interesting to hear about them…

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*Hint: Lidl 😉  Back ↑

*This is a slang term for pocket. I’m not sure of it’s origins but it doesn’t seem to be from the oft quoted cockney rhyming slang scene. If you like rhyming slang then you could do worse than replacing this term with “Sky Rocket”. Back ↑