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June 12, 2014

"How I Live Well On Less Than $40,000 A Year"

There are some things I don't understand--No taxes other than property tax? No medical expenses? (No deductibles, copayments?) No travel? No meals out?--and certainly not everybody would want to live like this, but it is still a useful reminder of what's doable


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Jack PQ

Good lessons overall (avoid cars, cellphones, cable tv, gyms and restaurants), but a few caveats:

- Cars are money pits. Absolutely. (I carpool.) But not everyone can avoid owning a car. In that case, buy a basic car and make it last.

- It is not obviously true that buying a house is better than renting. The long-run return to real estate is about zero, says Nobel winner Robert Shiller. And owning a house means your portfolio of assets is poorly diversified. Still, if you are confident you are staying put for years to come, it seems like a good call, as long as you don't buy a house beyond your means.

- Not sure everyone can get health insurance at that price, but okay.

- Most people buy their loved ones and other relatives gifts, and travel to visit them. So add $1000 per person per year.

Jack PQ

I should've put a source for my claim. This is debatable, but Shiller and the Atlanta Fed researchers who checked his claim agreed.

"the weighted average annual return of the S&P 500 is 4.55 percent, compared to 0.97 percent for the Shiller real home price index."

So think of it as investing in a security that pays off a lot of dividend but zero capital gain. The dividend is free rent (you pay yourself).

Cache version of RBF Atlanta analysis:


Jack PQ,

The dividend is also all the savings you have by deferring maintenance when you are elderly. You let things go and use up the "asset". The thing about owning a home is, it isn't really an asset to earn a capital gain (after inflation) on unless you've got a foolproof plan to move out of your area into a much lower cost area. You still need a place to live.

If you buy rural and the town comes to you, then you can gain. If you buy property and not in a suburb, you can gain if that land then becomes more valuable as retail or industrial. This implies you are near a once distant freeway exit or along a highway and not deep off the main road. But a home to remain as a home is a depreciating asset unless you ride it through the rise when you buy through the decline as the neighborhood cycles into low income/crime ridden, then last until gentrification at last arrives.

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