For many Americans, perhaps nothing better symbolizes prerecession excess than the McMansion.
If you live in a suburb of one of America’s major cities, you’re most likely familiar with the idea of a McMansion: a sprawling, often architecturally mishmashed home boasting several thousand square feet.
Now an opposite movement is taking hold called the Tiny House Movement. Although I’ve considered scaling down from my primary residence, I’m not sure I’m quite ready to be living with my family of four in a 200-400 square foot home just yet. However, there are a couple of key principles associated with the movement that can greatly help our personal finances.
Reduce Waste/Be more efficient
In the Tiny Movement world, this typically is focused on being environmentally conscious and minimizing the garbage you produce. It focuses on simple changes such as:
Swapping incandescent bulbs for LEDs or CFLs
Sealing gaps around your doors and windows
As it relates to our personal finances, there are many areas that money can be getting away from you that you don’t even know about and are unnecesssary. This can be in the way you pay for your cars and homes, fund college education, save for retirement, pay for insurances, and probably most importantly how you manage your tax bill which is the biggest expense we pay.
How we’ve been typically taught to save and pay for the biggest things in our lives can create waste that can significantly erode our wealth over time. How much benefit do you get by saving money in a bank account where your money becomes less valuable every year due to inflation? I’m sure your bank makes good use of your money while providing back pennies of interest.
What if there are other strategies you can use that would help you recoup all the cost you pay for your life and disability insurances or the taxes you’ve paid to the government?
Switch to multi-purpose products
Why let multiple single-function items take up room in your life and budget when multi-functional items accomplish so much more with less? Instead of a footstool, coffee table, and storage chest, get a storage ottoman that serves all three purposes. How do we apply this to our financial lives?
We’ve been taught to create an account for college and one for retirement, to save money in the banks that provide very little benefit, and to accumulate wealth in qualified plans in which the government creates the rules on how and when can access our funds.
Why not use financial tools that can do many jobs instead of just one or two? Two good examples are permanent life insurance and rental real estate.
Permanent life insurance can provide:
short and long-term savings in a tax advantaged vehicle exceeding bank rates
tax-free death benefit for your beneficiaries
protections against disability and long-term care
use of your money for any purpose as your cash is used as collateral (allows your cash value to compound uninterrupted)
dividends that can be used in various ways
Rental real estate can provide:
the pay down of your mortgage by someone else
depreciation (a tax advantage which offsets cash flow)
leverage (the ability to multiply dollars by borrowing against the property or using it as collateral)
If you use these two together, your money may be doing over ten jobs for you…now that’s what I call busy.
Now, you may not be ready to be a tiny house owner, however there is much to be learned from this movement that can help you build substantial wealth by thinking differently.