Don't Throw Away Your Financial Future

The serious financial downside of tiny house living.

On the heels of yesterday's post about solving our own problems I found this article about a 37 year old dude who works about six months year on his father's fishing boat and spends the rest of his time riding his bicycle around the world because he doesn't like to work and feels that working is unnatural because cavemen spent 9-10 hours a week hunting and gathering while the rest of the time was leisure.

The article portrayed him as never having more than $5000-$10,000 to his name at any one time. For purposes of this article I will assume that he is not in line to inherit a bunch of money as that was not disclosed in the article but maybe he is a trustafarian.

Something I've touched on before as being a negative byproduct of the financial crisis is people giving up on the "American Dream" of home ownership followed by retirement. Buying house as a bad investment became popular as did the notion that the stock market is rigged. This in turn contributed to the emergence of the Tiny House Movement (a lot that is positive about that), just doing odd jobs to make enough to get by living in a tiny house (a lot that is negative about that) and spending more on experiences than on stuff (a lot that is positive about that).

If you have watched any of the shows about people looking for tiny houses on HGTV, DIY, FYI and any other channels you have seen plenty of young people portrayed as willing to not have a career versus finding something part time to get by so that they have time to rock climb or pursue some other interest.

I am not against the idea of taking a year or so after finishing school to do something like cycling around the world or whatever, that is an opportunity for personal growth as a opposed to a lifetime of not doing anything. Taking a year or so does not impede a young person's ability to build some sort of base for when they are older. I think of a base as coming from buying a traditional home and building equity in it, having a job that provides an opportunity to build up a 401k and if you can build up some sort of 2-4month emergency fund that would be all the better.

Owning a house has long been thought of as an investment and that idea took a beating in the crisis. I still think of it as an investment, conceding the points made by people that don't think it so like having to pay for repairs, having to pay taxes, no guarantee that it goes up in value faster than the rate of inflation and other reasons.

A couple where each partner got their first jobs out of school at 25 (so maybe they spent a couple of years cycling around the world) making $30,000 (far from a heroic salary) putting away 10% into a 401k for 15 years could have contributed a total of $90,000 plus gotten employer matches along the way could have a combined $125,000-$150,000 in their 401ks. Maybe the stock market is rigged but this example seems to benefit from that "rigging." Had this same couple bought a modest home when they were 30 years old with a 15 year mortgage could easily have $150,000 in home equity and be just five years away from having no mortgage. These people then are not rich, but in their mid-40's have a pretty substantial financial base under them and they are still quite young. This creates a lot of flexibility in the face of wanting to make a radical career change or creates a lot of anti-fragility in the face of something bad happening to one or even both of the couple's jobs.

I can appreciate that at 25, it is difficult to envision what it is to be 40 or 50 but if you are 25 and reading this, depending on how you have taken care of yourself, 50 can be very young in terms of what you are able to do but you may want to make changes to your lifestyle (like your work) and having a base makes that possible. The people who in their 20's set out on a path of never having a career (by choice) and living in a $30,000 trailer are denying their opportunity to have a base thus denying their opportunity to have more options when they're a little older.

Another financial aspect to making $10,000/year, possibly under the table, is you never build up any credits for Social Security or at least not meaningful credits. That might not seem important in your 20's but assuming it is viable when you retire, even staying at $30,000 in income for each partner, their combined SS would be just under $2200/mo in today's dollars when they're 65 versus $600 making $10,000 total (assuming the $10,000 is reportable).

This all adds up to throwing away your future. We are older/flat out old for many more decades than we are young. Do the difficult stuff when you are young. If you ever have to work hard and worry about things, it is better to do that when you're young than when you're old. You may end up having no choice on this score but have very little realistic shot...unless you're a trustafarian.

As opposed to starting out in a tiny house, I've written many times about downsizing into a tiny house or a very small house for retirement or middle age after building a base along the lines of the one outlined above. Again, this creates options that the 55 year old you will be grateful for...should you need it.

Comments
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rogernusbaum
rogernusbaum

Editor

thanks for leaving the link!

sconnell1791
sconnell1791

For actual ownership the tiny house idea may not be the most financially wise move, but to get a recharge a weekend in one could actually be nice. Someone has even made a business of it: https://www.themaven.net/pursuit-of-happiness/community/stressed-out-try-a-tiny-box-in-the-woods-for-a-weekend-VEA2JABVb0CCtzxlnvhItg