Tiny Houses and Retiring Early

Living in a small space can lead to some challenging acrobatics…

When I lived in San Diego in the late 90s, I stayed for a while in a 95 square foot home-made room, roughly built on plywood platform and with nothing more than a tin roof and bed sheets as “walls.” Almost the entire space was taken up by a futon bed, but I had electricity and access to a house, where I could take a shower and eat.

To get to my room, I had to walk through a garden filled with fruit trees, down a canyon, and jump on a platform that had been built for the purpose of holding my “room.” The structure was solid, but I was risking my life every time I jumped on that damn platform!

Yet, I was happy that my rent was only $30 a week.

I’ve had other friends living in tiny apartments, where pulling out the salad spinner out of the top shelve meant hoisting themselves on chair, stepping on the kitchen sink, and holding on to one of the shelves while grabbing on to the bowl, with other books and pots being dangerously close to being knocked at any time!

Now I like to have a little more elbow space, and I like my space to be functional. I prefer to avoid wooden platform overlooking canyons, or poorly designed small apartments. It’s probably a lot safer, too.

Yet, there’s a difference between a crapy tiny living space, and a smartly designed living space.

Tiny Living

You’ve probably followed the rise of the Tiny House movement in the last few years in the US?

People are finding creative ways to design houses that are only 120 to 300 square feet! And “mansions” that are under 875 square feet.

Compare that to the average home size in the US, which is now a ridiculous 2679 square feet. It used to be 1660 in 1973, and people reported being just as happy then as they are today.

In Canada, the average home size is 1950 sq. ft. In Japan, it’s 1420.

Yet… if you account for inflation, the building cost per square feet of a home has remained relatively stable since 1973 It’s roughly between $105 and !25 per square feet.

At that cost, building the typical house will cost you over $300,000

But if you built a Japanese house, you’d pay only $175,000

If you went for a tiny house, the cost is slightly higher per square foot because things get more complicated when working in a tiny space. Plus, you have to account for some of the basic building costs that enter into a house, no matter what the size.

But many people get by spending only $30,000 for their tiny house. That’s 10% of the average American home!

Why Housing Cost Matters

Let’s say you want to live the Internet lifestyle.

To be free, you want to calculate your expenses. Then you want to make sure that your online venture can cover your expenses, plus a buffer for savings, and do so in the number of hours you’re willing to work.

For example, let’s say your dream is to work only 3 hours a day from home, or 15 hours a week.

If your cost of living is $4000 a month, then you’ll need to generate probably twice that amount per month (to account for taxes and business expenses), to reach your goal.

But if your cost of living is lower… then you require even less to arrive at your goal.

It’s the same if you want to retire early. Your expenses matter because they dictate how much in savings you need to make it work.

In general, you want to multiply your yearly expenses by 25 to arrive at the number that you need to retire early.

For example, if you need 60K per year to live, then that means you need over 1.5 million to retire. Otherwise, you’ll eventually eat away at your nest egg or it will be destroyed by inflation. This assumes that you’re investing your savings.

But if you need only 20K per year to live, then you need a third of savings to make it work, or about 500K.

I’m not taking into account social security and other things like that. You can deduct those amounts from the yearly expenses to arrive at the right number.

It may be discouraging to run the numbers because you then realize how much more you need to be totally free!

It’s a great idea to generate some revenues with your website, but if you don’t manage your expenses, you’ll always be chasing after your own tail.

One key to that is to manage your housing expenses.

That may not mean going tiny, but if you can find a way to live in something significantly smaller and cheaper than what your peers are living in, you’ll be ahead of the crowd!

Share your stories and comments below.