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For Financial Independence, Forget the McMansion

Author: Christopher Harris

Being financially independent sounds like a dream life – sitting at home, reading on a beach or being a stay-at-home mom are all better alternatives to commuting an hour a day in heavy traffic to listen to Sue talk about her totally awesome weekend. Achieving financial independence means having so much money and assets accumulated that the amount of income they generate is high enough meet all of life's expenses. (Related: 10 Simple Steps To Financial Security Before 30.)

Although most Americans would agree that financial independence is something to strive for, a big problem makes this dream unattainable: McMansions. A term first used in the 1980s, McMansions are houses that are comically large and are found in the suburbs of every American city.

Affordability Matters

McMansions are not affordable. Yes, once the payment is amortized over 30 years at a low interest rate, the payments may be easily covered with less than the recommended 30% of your income but this is nonsense. No one should be spending that much on housing in an age where a lack of corporate loyalty means that lay-offs could be around the corner. No job is secure and there's no guarantee that a similarly-paid job can be found before the emergency fund runs out.

The key to affordable housing is to downsize to something more practical than a McMansion. A house even half the size of a McMansion can save tens of thousands of dollars, not only on the purchase price but also in taxes, insurance, maintenance and utilities. This savings is compounded over the life of the house and has two benefits.

Living Far Below Your Means

First, a smaller house is not only easier to carry financially in the event of a job loss or pay reduction, it's also easier to carry once you've achieved financial independence. A portfolio of $1 million will provide enough money to support a small family that has an affordable lifestyle, but would barely cover the mortgage on a McMansion. (Related: Retiring: Is $1 Million Enough?)

Secondly, that $1 million portfolio is much easier to acquire when a person isn't spending half his income on housing costs. Affordable homes with affordable mortgages that can be paid off quickly mean interest savings and more years for the money to compound in a portfolio.

While it can be argued that housing is an asset and owning the most amount of real estate possible is a path to success and riches, the act of placing the vast majority of a person's assets in a single piece of real estate – the McMansion – is financially irresponsible. (Related: The Most Financially Irresponsible Presidents Of All Time.)

The Age Of Materialism

McMansions have never been about needing a bathroom for each kid or a five-car garage. McMansions are, at their core, about materialism and the display of wealth. Accountants and financial advisors can tell people that their McMansion is unaffordable or irresponsible but if the buyers need the house to fulfill a materialistic lifestyle or to keep up with the Joneses," no amount of persuasion will convince them otherwise.

Instead, there ought to be a mass movement away from materialism and the trappings that come along with it. Not only do people buy McMansions and all the additional expenses that come with them, the neighborhoods in which these houses are constructed are filled with affluent people with whom it becomes a bit more expensive to keep up – no one really thinks about having a luxury car until the nextdoor neighbor has one, just as a 32 TV looks fine until a new friend shows off his 60 TV. (Related: Stop Keeping Up With The Joneses – They're Broke.)

Affordable houses in affordable neighborhoods filled with less affluent people mean that hard-earned money can be saved instead of spent emulating the neighbors. These savings, used to purchase diversified, appreciating assets or wisely-invested are the key to financial independence.

The Bottom Line

Reaching financial independence is not an easy task. It takes years of steady income, diligent savings and a bit of stock market luck to finally announce that you're earning enouch money to live on. It can be easy to be side-tracked by materialism and a need for a McMansion but given its enormous price and its accessory costs, buying a McMansion means buy a one-way ticket away from financial independence.

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