I think the first time I heard the term “FOMO” (fear of missing out) was towards the end of 2017. It kept puzzling me until I listened to an episode of Fire Drill Podcast. Apparently it’s the new “YOLO” (you only live once)? I’m a bad millennial, I don’t even keep up with the acronyms.
In any case, it has been an hectic but nice holiday season as per usual here at Frugasaurus central. Mr. E. and I are lucky enough to have both our families in the same area. Something that makes logistics very easy.
But that is not the primary topic of this post. As the particularly attentive amongst you might have deduced, the title is pulling us in quite a different direction.
I’m the kind of person who often dig myself into a bubble of some kind. When I have done so, I am often honestly surprised when I am reminded that the real world looks very different from the world inside my bubble.
For the past several months, that bubble has been the world of personal finance blogging. I have been reading, learning and absorbing information left and right and generally been enjoying the frugal mindset of a lot of people online.
But when we went home for the holidays, we came back to a very different environment. One that is deeply entrenched in the Cult of Homeownership.
My father, in particular, is a firm believer in what a great investment buying a home is and how important it is to get into the market as early as possible. The housing market in Norway is enjoying a little bit of a fall at the moment, and the interest is the lowest it’s ever been with no sign of rising significantly within the next 12 months.
It all sounds so seductive and so reasonable. My kind father even offered to help us with the 15% down payment required by the government. The other demand is that you can lend no more than 5 x your annual gross income. Which turned out to be our main problem when doing the math.
It coloured off on me, I am not going to lie. Suddenly I felt like our previous attitude of saving up some serious dough first was actually holding me back financially. We could find a cheap flat somewhere closer to where my friends live.
We could own our own. Maybe host some airBnB. Get Mr. E. the office he so deeply craves. We could… oh, the possibilities seemed endless.
Suddenly it felt as if the market was galloping away from me. Prices would rise again, as would the interest. Panic galore!
But wait. Has this discussion not been had in the personal finance space 100 times over? Millennial Revolution, in particular, has been especially outspoken on the issue. The part about locking your wealth in a house instead of in investments and how much one grows compared to the other is sobering.
I tried to math it up. I added up how much we spend on renting per year. 9 500 NOK (about $1100) per month, adding up to 114 000 NOK (almost $14k) per year? Yikes! And ours is a cheap flat for where we live, with heating and internet included.
So how much would the additional monthly costs plus interests on a 2 million NOK (~$240 K) loan at an interest of 2.5% cost me? Mind you, very few apartments are actually sold for this low in our area. And bidding wars make you unlikely to get one. 2.2-2.5 million NOK are more likely.
In the first years, if we make little more than the minimum payments, it turns out that they come out about equal. The interest alone claim at least 50k NOK in this highly simplified example(62.5k NOK for a loan of 2.5 million NOK).
Additional costs to the apartment complex range anywhere from 3k-6k and vary considerably between apartment complexes. This joker would be one of the deciding factors to whether or not we would pay less in new expenses and interest compared to just throwing money at our landlord.
On top of that, of course, are higher electricity bills, the risk of rising interest, plus any and all random expenses previously covered by a landlord, like plumbers and electricians.
Then there’s document fees and realtors. Startup costs for the loan in some banks. The cost of moving itself. All the time required. Carrying things and packing up boxes. Hours upon hours just pouring away.
If we did nothing with our spare money, then buying this fictional flat would come out on top. But that is not what most personal finance bloggers do. After all, there are index fund investing which generates a 7% average appreciation per annum. An appreciation we certainly would not see if we shovelled all our money into an apartment, since the housing market continues to be out-performed by the stock market.
While the finances of the whole ordeal has me scratching my head and grumbling over the numbers and my emotions, there is one more, important aspect:
Neither Mr. E. nor myself want to live in an apartment complex. We want a house. A small one, but a house none the less. A place with a garden and no noisy neighbours trampling over our head. We also want to have a short distance to the forest for foraging and hiking, something the apartment complexes in our price range does not typically have.
Doing this would lock us into a specific place for at least 3 years if we wanted to have a chance at breaking even, providing the housing market does not crash on us. we would be tied to that place, or suffer a financial slap in the face, if a better deal came sailing along during that time.
The alternative, to which, could be to save for a year or two and get something closer to the house we actually want. It might not be that house in the forest while we are still tied to our 8-4 jobs in the city, but it would have a garden, office space, a basement with a pantry, and all other sorts of delicious things.
A place where we can live close to our friends while waiting for that house in the forest to come sailing along. A place we might even be happy.
Who knows, what if we end up having such a jolly good time that we stay? Life is funny that way in my experience. That is why I never make specific long-term plans. I just try to aim my life in the general direction I want to go, and hope I’ll land somewhere in the vicinity.
In which case, finding a place to rent closer to our friends might also be a viable option?
The problem with the latter is actually that our current flat is a good deal, and we have not been able to find anything of similar size and quality for a similar or lower price. Seeing no reason to part with more money than necessary, this gives us pause.
Getting back home after the holidays, it was great to get back to our old habits. As we did so, things slowly started falling back in place.
We struck a truce of sorts. To start the process, even if it is just to learn the ropes. Speaking to banks, going to open houses. Learning the market more in depth than we have done from just looking at flats online.
As with all new things, I am finding it intimidating. These are large sums of money after all. And who knows if I get a new contract after my current one, or if the sidehustles are bringing in enough to keep a roof over our head in a year or three? But as with all things (this blog included), the most important thing is to just start.
So that is exactly what we are going to do.
Just as with our list of wants, it turns out that time was yet again our friend. By taking a step back to catch our breath, things seemed to fall into place that much more naturally.
So my advice to you would be to take your time. As with so many things, if you feel you are being rushed, step back. Good deals stay, bad ones grumble. Don’t sign without reading the fine print and all that.
Happy 2018! What new, potentially scary endeavours are you determined to tackle this year?