Affordable Lifestyle Practice That Could Secure Financial Independence for Decade
House hacking is a strategic approach to reducing housing costs and accelerating your path to financial independence. By turning your living situation into a source of income, house hacking can significantly reduce or even eliminate one of your largest expenses—housing costs—and help you reach financial freedom years earlier.
The concept of house hacking involves purchasing a multi-unit property, living in one unit, and renting out the others. This approach, popularized by real estate investor Chad Carson, who achieved financial freedom in his 30s, can be an entry strategy into the world of real estate investment. Carson bought a four-unit property, lived in one unit, and rented out the other three to cover the mortgage.
One of the advantages of house hacking is that it often qualifies for low down payment financing, with options available for as little as 3.5% down for first-time homebuyers through FHA mortgages. Veterans may even be eligible for 0% down financing.
By living in a multi-unit property and renting out the other units, you can use rental income to cover your mortgage and related expenses, thereby minimizing your personal monthly outlays. This reduction in monthly housing costs lowers the total amount you need to save for retirement because your annual expenses decrease dramatically.
According to the 4% withdrawal rule, every dollar saved on housing reduces your financial independence savings target by 25 times that amount, allowing you to reach your goals faster. For instance, a dollar saved on monthly housing reduces your financial independence target by $25.
In addition to house hacking, there are other strategies to reduce housing costs. Meal planning and cooking at home can cut food costs dramatically. House sharing, where you rent a room to someone, is another option to reduce housing costs without buying a new property. Downsizing to a smaller home or apartment can also free up substantial monthly money.
Geographic arbitrage, or moving to a lower-cost area where your money goes much further, can also significantly cut living expenses. Americans currently spend over $5,000 annually on dining out, representing a significant savings opportunity. Transportation is often the second-largest expense for most people, typically running $9,000+ annually for retiree households. Reducing these expenses can also speed up your journey to financial independence.
Implementing these strategies takes 6-12 months of planning, saving, and market research for best results. Start by calculating what percentage of your gross income currently goes to housing costs and setting a realistic target for reduction. Understanding financial independence starts with a simple rule: you need to save about 25 times your yearly expenses to retire comfortably. By reducing your housing costs, you're not only taking a significant step towards financial independence, but you're also shaving years—often 10 or more—off your timeline to financial independence and early retirement.
- House hacking, a strategy for reducing housing costs, can help individuals reach financial freedom faster. By purchasing a multi-unit property, living in one unit, and renting out the others, you can use rental income to cover the mortgage, minimizing personal monthly outlays.
- In addition to house hacking, implementing other cost-saving strategies such as meal planning, house sharing, downsizing, geographic arbitrage, and reducing dining out and transportation expenses can significantly cut living expenses and speed up the journey to financial independence.
