This is the tenth of twelve parts of a “book club” reading and discussion of Dave Ramsey’s The Total Money Makeover, where this book on debt reduction is teased apart and looked at in detail. This entry covers the eleventh chapter, finishing on page 202. The next entry, covering the twelfth chapter, will appear on Wednesday.

This is a stage that I see us approaching as time goes on. We’re not quite there yet, but we’re close. Right now, I’m trying to knock out my final student loan (it’s a doozy), and then start focusing on my home mortgage.

Our home mortgage payment is just shy of $1,100 – that doesn’t include homeowners’ insurance and taxes, so when we get the house paid off, we now have $1,100 more a month to spend on whatever we choose.

I, for one, would roll that extra amount directly into savings. I’d simply change the automatic payment to be an automatic transfer into a savings account of some sort – perhaps an index fund. Then I just keep living life as normal until one day that account is full of cash for something great. For us, that “something great” is our long-dreamed-of house in the country, with a small barn out back, a big garden, and a chicken coop.

Is It A Crazy Goal?
My parents recently finished off their home mortgage after paying on it for thirty years. They’re pretty much debt free at this point for the first time in their marriage. So, for me, I have a great example in front of me that you can get rid of all of your debt. However, many people don’t have that example and it seems like an impossible goal. On page 186:

Anytime I speak about paying off mortgages, people give me that special look. They think I’m crazy for two reasons. One, most people have lost their hope, and they don’t really believe there is any chance for them. Two, most people believe all the mortgage myths that have been spread.

The “hope” factor is something I see popping up over and over again whenever I talk to people about money. Many people I talk to view their mortgage as simply a fact of life. If they were ever in a position that their mortgage became really easy to pay, it wouldn’t be time to double-up on the payments – no, no, it would be time to upgrade their homes.

I think this points to a prevalent mindset out there when it comes to debt. Many people simply view debt as a way to leverage the lifestyle they want now. It comes from a lack of patience – people don’t want to live in a small apartment watching their savings grow slowly when they could just get this loan and be in that house now – even if it costs them hundreds of thousands of dollars.

I think patience is one of the biggest tools a young professional can have when it comes to his/her money. Just wait for a while – you’ll be way better off over the long run.

The Tax Deduction Myth
Owning a mortgage just to get a tax deduction is something of a fool’s game, as outlined on page 187:

If you have a home with a payment of around $900, and the interest portion is $830 per month, you have paid around $10,000 in interest that year, which creates a tax deduction. If, instead, you have a debt-free home, you would, in fact, lose the tax deduction, so they myth says to keep your home mortgaged because of tax advantages. [...] If you do not have a $10,000 tax deduction and you are in a 30 percent tax bracket, you will have to pay $3,000 in taxes [...] According to the myth, we should send $10,000 in interest to the bank so that we don’t have to send $3,000 in taxes to the IRS.

All the tax deduction does is lower the effective interest rate you’re paying on your home loan a little bit.

In fact, Dave doesn’t even make the case as well as he could. If you’re using your mortgage interest on your tax return, that means you’re foregoing your standard deductions because you have other things to deduct. So, take our situation – we have two adults in our home. Our standard deduction in 2009 is $11,400. If we choose to itemize our taxes (which we’d have to do to deduct our home interest), we have to have more than $11,400 in interest on our home mortgage (or other deductible expenses) to beat what we would already get.

So, if your only significant deductible expense is your home mortgage – and your mortgage isn’t gigantic – you’re not actually gaining much of anything at all in terms of taxes.

The Risk of Having a Mortgage
Another disadvantage of holding on to a mortgage is the risk – if something goes wrong in your life, it’s a lot better to not have a mortgage payment than it is to have one. On page 189:

If I own the home next to you and have no debt, and you (because of your investment adviser guy) borrowed $100,000 on your home, who has taken more risk? When the economy moves south, when there is war or rumors of war, when you get sick or have a car wreck or are downsized, you will run into major problems with a $100,000 mortgage that I will never have. So debt causes risk to increase.

I think this is a vital, overlooked point. Having a mortgage – or any debt – is a type of risk. You’re gambling that your future will be stable, no different than putting cash down at the roulette wheel. With a mortgage, your life is simply more at risk than it was before.

I have two young children at home. Risk stares me in the face every day. I encourage our children to push their limits a little, but I still stand very close by when my three year old grabs onto playground gymnastics rings and hangs there. Having a mortgage is something like telling my three year old to grab the rings for the first time while I stand far away. Sure, he might hold the rings for a while and then drop without a problem, but my distance increases the chance of a hurt elbow or a broken arm.

The risk of owning a fat mortgage is much like the risk of putting your child on a bike for the first time and shoving them down the sidewalk. Sure, they might ride like the wind, but they might also fall flat on the pavement. Instead, it’s better to do a bit of planning (like saving for a home) and then let go when they’re ready (like when you have enough saved up for a house). No broken bones, no broken lives.

Thirty Years Versus Fifteen Years
Many people advised me to get a thirty year mortgage instead of a fifteen year mortgage, arguing that I could make an extra payment each month and get the same speed benefit of a fifteen year without the risk of the larger minimum payments. That’s a bad idea because something will often come up, as is spelled out on page 190:

A big part of being strong financially is that you know where you are weak and take action to make sure you don’t fall prey to the weakness. And we ALL are weak. Sick children, bad transmissions, prom dresses, high heat bills, and dog vaccinations come up, and you won’t make the extra payment. Then we extend the lie by saying, “Oh, I will next month.”

A higher minimum payment is actually a good idea, because it forces us to work with what we have left over. A lower minimum payment means that we just have more to work with – if that extra payment isn’t required, it’s easier to argue that something else is more important for the moment.

With expenses like prom dresses, heat bills, bad transmissions, and dog vaccinations, you can always find ways to make it work. If you have a decent emergency fund, it shouldn’t be too tough at all.

What do you get in exchange for these little sacrifices? Your mortgage goes away in half the time. You find yourself free of that load much, much faster. Plus, the interest rate on a fifteen year loan is lower, meaning your payments won’t actually be anywhere close to double what they would be for a thirty year mortgage.

Home Equity Loans Make Poor Emergency Funds
One common question I get from readers is whether or not they should take out a home equity loan to deal with some problem in their lives. My feeling is that if you’re in that situation, you need to rethink about your emergency fund. Sure, the home equity loan might be the right solution for right now, but if you’re living your life in such a way that it has to be used, you might want to rethink how you’re managing your money.

On page 197, Dave dips his toes into this idea:

Even a conservative person who doesn’t have credit card debt and pays cash for vacations can make the mistake of the HEL by setting up a loan or a “line of credit” just for emergencies. That seems reasonable until you have walked through an emergency or two, and you realize very plainly that an emergency is the last time you need to be borrowing money. If you have a car wreck or lose your job and then borrow $30,000 against your home to live in while you make a comeback, you will likely lose your home. Most HELs are renewable annually, meaning they requalify you for the loan once a year.

Think of it this way. You’re using your home equity loan as an emergency fund. You lose your job, so you take out $30,000 to live on – it’s fine, since you have tons of equity in your home, right? Well, the end of the year comes and you still don’t have a job. The bank says, “Sorry, we’re not renewing your loan,” and they call in the $30,000. You don’t have it. They repossess your house. Any equity you built up is gone.

An emergency fund needs to be cash, period. If it’s not liquid or it puts you at risk to get it, then it’s not an emergency fund.

Our local credit union has hinted to us that we should have a home equity line of credit. I have torn up every single offer they have sent to us. I’m not interested in that kind of risk.

Paying Cash for a Home Is Impossible
I agree with Dave that it is indeed possible to pay for your home with cash. So why don’t people ever do it? It’s not easy. It’s a lot harder to go this way than it is to just go get a mortgage. On page 198:

Paying cash for a home is possible, very possible. What’s hard to find is people willing to pay the price in sacrificed lifestyle.

I think the problem is that many people view their home as more than just living quarters. They view it as a status symbol – they need a house they can show off to family and friends. It’s more impressive to live in a house than an apartment, isn’t it? So, if you back up and think about it, you pay hundreds of thousands of dollars in interest, home maintenance, and other costs – not to mention time – in order to impress others.

Again, the only people impressed with such things are people that you never speak to, who don’t matter in your life. They look at you and admire your home, but they don’t build a relationship with you. The people you build lasting relationships with like you, not your house.

We chose to buy a home with a mortgage. I don’t regret it, but if I had to do it all over again, I would have looked intensely for a great rental situation instead (since we originally lived in an apartment too small for two toddlers and two adults – we had to move) and kept saving.

Do you have any other thoughts on this chapter of The Total Money Makeover? Please share them in the comments – and feel free to respond to any of my impressions as well. After all, a good book club is all about discussion!

On Wednesday, we’ll tackle the twelfth chapter – Build Wealth Like Crazy.

Eventually, every homeowner finds a sizable home improvement project that they’d like to tackle. Perhaps the project is rebuilding a deck. Maybe it involves putting new concrete in the driveway.

Whatever it is, it’s big. You could tackle it yourself, but you’d be working on it after work for weeks, losing many, many hours that could be spent on other activities. So you either dig into the drudgery yourself, put it off, or, worst of all, hire someone to do it.

I suggest a different route.

A few years ago, a close friend of mine decided that something needed to be done about his cracked driveway. One Saturday, instead of putting it off yet again, he pulled a big grill around to his front yard, iced up some coolers with a bunch of tasty beverages, and invited a bunch of friends over to help. They all worked together getting the old, busted cement out of the driveway and adding a fresh new batch. One friend was a carpenter who took charge of the operation, but more than a dozen guys offered up their labor, knocking out chunks of concrete, carrying things out of the way, putting forms in place, and smoothing freshly-laid pavement. Along the way, they enjoyed freshly grilled brats for lunch and some excellent thick steakburgers for dinner.

In one day, my friend got his driveway refinished with no labor costs – his only expense was a lot of beverages and a fair amount of food. Everyone else there got two free meals, a lot of free beverages, and an afternoon spent outside with a bunch of fun people.

How can such projects work? In order to make it happen, you need to plan ahead in several different ways – but the extra planning and effort will really pay off later. Here’s what you need to do.

Always volunteer to help with projects that others are doing. If a friend of yours needs a hand with a project, don’t hesitate to burn an afternoon helping to put up a deck, assemble a shed, re-shingle a roof, or install a driveway. Even if you don’t believe you have any skills to offer, there are always things you can be doing, even if you’re merely a gofer or you wind up being the food preparer. Every task that you can help with helps the entire project move forward.

Give some advance notice. Don’t just call people on the morning you plan to get started on the project. Instead, give them a couple weeks’ notice at least, and keep track of the ones who seem at least interested. Let them know that there will be plenty of people, food, and beverages – don’t just focus on the work.

Plan out your work. Know exactly what your project is going to entail. Have all the supplies you’re going to need on hand well in advance of the working party. Have a plan in place that details what needs to be done and in what order the tasks need to be accomplished.

Be organized. On the day of the working party, get all of the supplies you’ll need out and organized before anyone else arrives, so that they can easily be found when work begins. Do some of the early steps yourself – measuring, marking, and so forth. This way, when people begin to arrive, the real work can begin.

Don’t be afraid to ask for extra help from experts. If you have a friend who is skilled at carpentry, don’t be afraid to ask for a bit of extra assistance and advice from this person. Invite them to come over earlier – and don’t hesitate to give them some gift of appreciation if they go beyond what you might reasonably expect from them.

Have a wide array of beverages available – and plenty of them. Water and sodas are good choices for earlier in the day – beers are usually good choices for the end of the day. If you’re unsure what you should get, ask people when you call them. Make sure you have more than enough.

Keep the beverages cold. Take empty milk jugs, fill them 2/3rds full with water, and fill your freezer with these jugs in the week before the party. The day before, ask around for coolers to borrow – try to get two or three of them. That morning, take out the jugs, smash them, and fill the coolers with beverages and ice. Make sure you don’t run low on cold beverages – on a warm day where people are outside working, it’s vital that you keep plenty of cold beverages available for them.

Thank everyone that shows up, both when they arrive and when they leave. This is simply good manners and goes a long way towards ensuring that people don’t leave with a bad taste in their mouth. Thank people for coming as soon as they arrive, let them know where the beverages are and when/where the food will be, and brief them on what’s going on.

Work hard. Never stand around while others are working on your project. Be involved at all times – and if you’re not directly involved, be doing something else clearly productive or purposeful. There’s no better way to sour the mood of a working party than to have the host standing around while other people are building his or her deck.

Have someone focus on food preparation. Although you’re the host, your role should be out there working as hard as anyone else on the work project. This means that, for food preparation, someone needs to give a hand. One great tactic is to simply ask someone appropriate – your spouse is a good choice, as is someone who might have a physical handicap that makes it possible for them to prepare the food, but difficult to engage in the work. Arrange this ahead of time so that it’s not a concern.

Make it fun. Have a radio available, and tune it to something that many of the people will find interesting. Growing up, when my father would have events like this, he would make sure that the radio was tuned to a baseball game of one of the local teams – this is actually a pretty good suggestion. At the same time, keep conversation going – and keep people talking. Introduce people to each other if they don’t know each other well.

If you’re called later by someone who helped you, help them. These types of exchanges are often the beginning of a long-term relationship that will be beneficial for both of you.

A working party can be a great way to build friendships, have fun, and get a major task accomplished at a very inexpensive rate – but it does require a lot of work and preparation. Good luck!

A few years ago, there was a very widely circulated statistic from the National Association of Home Builders about the increase in home sizes over the last sixty years. According to their numbers, the average American home grew from 983 square feet in 1950 to 2,434 square feet in 2005.

I grew up in a home that measured about 850 feet of floor space. It was a three bedroom house, though one of the bedrooms was extremely small. Growing up, I shared a bedroom with both of my older brothers for several years, then eventually inherited that room as my own as the older ones moved out.

We currently live in a home that’s very close to 2,000 square feet. It’s far larger than the home I grew up in – it has four bedrooms, for one. Our two children share a bedroom together – there’s also the master bedroom, an office, and a guest room.

Both houses have a kitchen, a living area, a dining area. Both houses have plenty of room for two adults and two kids to live.

What’s really the difference between the two situations? What makes up the added value in that extra 1,200 square feet?

In the end, it’s mostly used for storage.

I think I realized this most clearly over the past weekend, when it seemed that time and time again, all four of us wound up congregated in the same room. We spent a lot of the day in our living room, playing with toys, reading books, and enjoying the relative freedom that a family weekend brings.

On an average day together, we spend most of our time congregated in either the family room or the living room (which could easily be one room). At nap time, both kids fall asleep in a single bedroom, and we sleep in a second bedroom. We use the kitchen and the dining room for meals. As for the rest? The guest bedroom is often unoccupied. I could do most of my writing at a small corner desk in the family room instead of using an office. The laundry room could basically just take part of the space used for the entryway. We could eliminate all but one of the bathrooms without a real crisis.

And suddenly we’re living in a 1,000 square foot home.

Does this mean I regret this house purchase, and that I’m now looking to downgrade to a smaller place? Not at all. I like the area in which we live, where there are children the same age as my son (or within a year or two) in virtually every direction. Last summer, my kids spent almost every evening and good chunks of every day running around in the yard with other children their age – well-mannered children who are also being raised to be intellectually curious. We have a nice big yard that borders on a field and also on other yards, creating a huge green space for our children (and other children) to play together on.

What I did learn is quite simple, though: the square footage shouldn’t be the primary factor when choosing a house. Although there are times when it feels good to have room to spread out, most of the space is completely unused most of the time (except for storage of things we probably don’t really need to keep). Even more important, choosing a lower square footage usually means much less expense over the long haul – you don’t really lose living space, but you do lose storage space, which means that you can’t accumulate as much stuff, which thus means you’ve got less money invested in material items that are just tossed into storage.

One thing’s for sure – as my wife and I consider these factors and re-work the plans for our retirement home, the plans are slowly growing smaller and smaller.

Over the next few days, we’re going to take a look at five common New Year’s resolutions that people often adopt for their finances, evaluate some of the traps that people fall into with regards to that resolution, and come up with some real actions that can turn a challenging New Year’s resolution into a success.

On New Year’s Eve 2005, my wife and I made a solemn commitment to start seriously saving for a down payment. We had a one month old child and were living in a tiny apartment that, even with just the three of us, was already getting tight for space. We knew that we would have to upgrade our living quarters soon and so together we resolved to make a change.

It didn’t go so well. Just four months later, we reached our financial low point – and we realized that just making such a resolution didn’t really help anything at all. We needed a plan in place if were were going to make things work, and so we got down to business with a real plan for saving for a down payment. Today, we’re happily entrenched in our own home.

What could we have done differently back then to make our resolution work? Here are some tactics that we used later on for our down payment plans that would fall right in line with such a hefty resolution.

Set a very clear goal right off the bat. So, you want to save up for a down payment. How much money is that?

Surprisingly, many people stumble even at that first question. The idea for a down payment is very vague in their head. I know that our original thoughts on the subject were incredibly vague – we just knew that we needed to save quite a bit of money.

Chasing after such an intangible goal is almost a guarantee that you will fail. Instead, do some basic house hunting in your area and get an idea of the prices on the type of house you would like to buy, then set a savings goal based on that price.

Let’s say, for example, that you decide that a $200,000 house is right for you. How much of a down payment on that house are you going to save for? A 10% down payment? 20%?

The larger the down payment, the better. You’ll need 20% down in order to get a typical fixed rate mortgage at a low interest rate. If you have less than that, you’ll usually have to get separate mortgages (an 80% mortgage along with an additional 10% mortgage) or, if they’re still being sold, an adjustable rate mortgage of some kind.

These two numbers will tell you what your dollar goal is, but what’s your timeline? Are you intending to save $40,000 in four years? That’s roughly $10,000 a year – $800 a month will get you there.

Your timeline, you see, will help you break down this big goal into smaller short-term goals. $800 each month – can you do that? Can you do it if you get creative with it? $800 is a tangible goal that you can shoot for each month – a vague notion of “saving for a down payment” will never push you towards your goal.

Make sure the goal is a realistic one. Once you’ve started breaking things down into real numbers, you’ll probably start gasping at the high amounts. Can I really afford that? Likely, you can make a pretty strong goal each month if you put your mind to it, adopt some frugal strategies, and settle in for the battle.

However, there is often a temptation to make the goals too high. If you’re attempting to save 50% or more of your monthly income for this goal, you’re probably not going to make it.

My suggestion is to try your savings plan for a month or two and see how it works for you. If it’s beyond your means, go back to the drawing board. Don’t be afraid to toss your plans aside and adjust things. Perhaps you can expand your timeline. Perhaps you can set your sights lower in terms of the house you intend to buy.

The key is to not decide that things are hopeless just because you’ve decided that your first attempt at a plan is just too much. Step back, look at the overall plan, and make some adjustments. Don’t just walk away because you find it too difficult.

Figure out where that money is going to come from. So, you’ve elected to save a certain amount of dollars each month. Where is that money going to come from?

In some situations, people are already natural savers and they already spend less than they earn, but this seems to often be the exception rather than the rule. Quite often, people who make a resolution about a down payment aren’t saving much at the moment to begin with, and coming up with a savings plan is going to be difficult.

First, look for ways to easily cut your spending. Look for big pieces and also ones that repeat monthly. Instead of leasing a car, perhaps you can buy a late model used one and drive it for many years, saving yourself a car payment that you can put away for your down payment. Perhaps you can eliminate that monthly Netflix bill, or maybe you can cut back on your cell phone usage – do you really need that many minutes or that big of a text message plan? Maybe you can adopt a “one meal out a week” plan instead of dining out every other evening – that will likely save you $10-20 a meal at least.

Second, adopt some simple long-term cost savers. Install CFLs throughout your apartment to cut down on electrical use. Install a programmable thermostat in your apartment (check with your landlord) and program it so that you’re not wasting money on your heating or cooling bills while you’re at work. Put your home electronics on a switch so you’re not paying for your cable box to sit there idle while you’re not at home. These solutions will save you significant money on your energy bill without thinking about it.

Finally, look for some extra income. Perhaps you could work a part-time job to earn some extra cash, or maybe you have some marketable skills that would work well in a freelance environment. If you can bring in extra cash, that cash could go straight to your savings without skipping a beat.

Automate the savings. As you begin to save, you’ll find that it’s often tricky to keep your savings in balance with your normal spending. You’ll try hard to keep money swept into a savings account, but it doesn’t always work smoothly.

Make it smooth. Institute an automatic savings plan with an online bank that has a good rate of return on their savings account (I use ING Direct). Then, each week, have the plan automatically withdraw a certain amount from your checking account. $190 a week, for example, equals out to roughly the same amount as $800 a month over the course of a year.

With an automatic savings plan, you know that the amount will be withdrawn each week, and you can plan ahead for it. It’ll force you to be much more careful with your spending, even if you seem to have the cash on hand to afford something frivolous. Even better, after a while, you can check that new account and see that the savings is really starting to add up.

Utilize windfalls effectively, even small ones. Another useful tactic is to immediately pass along any windfalls that come your way straight into your savings. Did you just get a small inheritance? Don’t spend it foolishly – instead, apply it directly to your savings without a thought.

This goes for little savings and windfalls, too. Let’s say you find a $20 bill on the street. You might be tempted to spend it on something fun, but why not just go ahead and put it towards your big dream? The same goes for any small savings you might make – let’s say you don’t eat out at all this week and save $25 in the process. Go ahead and sweep that straight into your savings.

What this will do is accelerate your dream just a little bit, and perhaps take some of the pressure off.

The real key to making a resolution to save for a down payment work is persistence. This isn’t a goal that will happen overnight. Instead, you need to provide a degree of constant focus in order to make it work. Good luck!

A few weeks ago, I decided to spend a few hours looking carefully at all of our insurance policies. I knew in general how most of them worked, but in many cases I was a little fuzzy (or more than a little fuzzy) on the specifics.

As I studied our homeowner’s insurance policy, I was surprised at how high the value of the insurance was for replacing home contents. It was one of those little things that threw up a red flag for me, and it kind of stuck in the back of my mind.

About a week later, I was still thinking about that number, so I took a very careful inventory of our home’s contents, adding up how much these items would cost to replace – and sure enough, the cash value of everything in the home was only about 40% of the amount we were insuring. Reducing that number would surely save us a significant amount on our policy, so I was about to call up and start discussing things with our insurers when my wife popped in.

She was curious as to how much value I was putting down for some of our most valuable personal items, like some of the handmade wooden artwork her grandmother made, a painting done by my great grandmother, and some mementos from our wedding.

I went through the list I’d made and rattled off a few prices, which were estimations of what they’d cost to replace with similar items. My wife shook her head and told me, flat out, that I was drastically shortchanging the items.

But was I? This has been a big question for discussion around here for a while, actually.

My wife’s position initially was that such items have a very, very high value. She propositioned it this way: how much would I accept in payment for that painting by my great grandmother? The price would have to be very high – and I don’t think I’d sell it at any price.

That’s the conclusion that many people come to when they consider insuring the property in their home. They look at those irreplaceable and personally valuable items and think about how much they’d feel was an appropriate price to let go of something so valuable. Quite often, that price is insanely inflated – but for good reason. The item has a great deal of personal value.

But consider this: would you be able to replace that item if it were destroyed? Would you even think about replacing it?

My grandmother’s painting is invaluable to me. I can’t even realistically name a price that I would sell it for. But if it were destroyed in a disaster, I wouldn’t even think of replacing it. I’d have my memories of it, and I’d probably lament that it was missing, but how could I possibly replace it?

In our new home, I would probably put up a print on the wall, or possibly an original painting by another artist, but neither one would come close to the value that I personally ascribe to my grandmother’s painting.

This gets back to the original question: how much should my grandmother’s painting be insured for? Considering that it’s not something I would ever be able to replace – nor would I really attempt to – I’d argue that it shouldn’t be insured for much at all.

Then, if you apply that rule of thumb to items in your house that really only have a deep personal value, you’ll often find that the cash value of the contents of your house is not nearly as high as you might think it is. In that case, you’re likely vastly over-insuring the contents of your home – and paying an extra premium for that privilege.

Now, that’s not to say that there isn’t a good argument for insuring on the high side of what you own. You’re far better off having a little bit of breathing room than cutting your insurance down to the bone.

But when you consider the value of the property in your home, think carefully. Ask yourself whether you’re insuring the value that you personally ascribe to things – or the real value of replacing things that you would actually replace. You might just find that you’re over-insuring your contents just because of your own personal feelings – and that’s a financial leak you can easily plug.

Over the last week, several readers have written to me with various comments, suggestions, and questions related to the so-called “small house movement.” Given that it’s a great way to save money (as I’ll discuss below), I thought it’d be worthwhile to investigate the movement in detail.

What is the “small house movement”?
From the website of the Small House Society:

The Small House Society is a voice for the Small House Movement. That movement includes movie stars who have downsized into 3000 square feet, families of five happy in an arts and crafts bungalow, multifamily housing in a variety of forms, and more extreme examples, such as people on houseboats and in trailers with just a few hundred square feet around them. Size is relative, and mainly we promote discussion about the ecological, economic and psychological toll that excessive housing takes on our lives, and what some of us are doing to live better. It’s not a movement about people claiming to be “tinier than thou” but rather people making their own choices toward simpler and smaller living however they feel best fits their life.

In other words, the “small house movement” includes people who are making a conscious choice to live in a smaller home rather than choosing a larger one. It includes people who could afford McMansions but live in only a 3,000 square foot home all the way down to single people living in a tiny one-room home (as depicted beautifully on that site).

There are a lot of reasons for doing this.

Ecology A small home simply uses fewer natural resources than a large one, both in the construction and in the maintenance (energy use, for example).

Psychology Because the home is small, one can invest fewer “mental cycles” in the upkeep of the home as compared to a large home.

Time Not only that, the actual upkeep takes significantly less time as well. With fewer square feet, it takes far less time to get the house clean.

And the big one…

How can a “small house” save me money?
There are several strong financial reasons for considering the “small house movement.”

Less initial cost Purchasing a smaller house means there’s a smaller initial cost to purchase the home. This may mean a smaller mortgage, a potentially lower interest rate on that mortgage, or perhaps even the ability to pay for the house using only cash.

Less maintenance cost With a small home, you’ll have a far lower energy bill. You’ll also have less expense for cleaning materials and fewer repair costs, too – a smaller roof means fewer shingles are needed to re-shingle, after all.

Less room to store unnecessary stuff If you own a smaller house, you have less space for storage, which directly impacts the amount of excess “stuff” you can accumulate. Thus, it becomes more difficult to spend money on impulsive buys – there simply isn’t anywhere to put it!

More time to devote to other money-making endeavors With the decrease in time needed to be spent on housecleaning and home upkeep, one can devote more time to other activities. Take those extra few hours a week and start a side business – or perhaps take up a part-time job for more income.

My personal take
My belief is that part of the recent trend towards large houses was fueled by the crazy housing bubble of the first part of the decade. People would build larger houses than they need under the impression that this house would be a great investment that would make their expenditure worthwhile.

In a normal housing market, you can reasonably expect that your home will appreciate to some degree, perhaps slightly ahead of inflation, but you should not expect that your home will be a great investment. Instead, it makes sound financial sense to view a home purchase as more of a functional investment than as a financial one.

In short, before you buy a home, know what you can afford, compare it to the rental options in your situation, and don’t put pressure on your budget. All three of these factors point toward buying a small home rather than a large one, as a small home is more initially affordable and won’t pressure your budget as much as a large home.

In other words, when it comes time to purchase a home, set your sights lower instead of higher. Taking all factors into consideration, a more modest home might be the right choice for your long-term financial future.

Winter is approaching and in much of the United States, that means very cold temperatures, snow, and ice. Here in the upper Midwest, it gets particularly nasty: we had some amount of ice or snow on our driveway nonstop from October to April last winter.

As a homeowner, this change in the season means one thing: what do I need to do to protect my enormous investment in this house from the brutal change in the weather and keep money in my pocket?

One big first step is to minimize your winter heating bills. I wrote a lengthy post covering twelve tactics for doing this – here they are in a concise list:

Air seal your home.
Make sure the attic is well-insulated.
Dress warmly inside and keep the temperature low.
Get a programmable thermostat.
Minimize or eliminate use of vent fans.
Turn off the heat in unused rooms.
Use space heaters.
Make sure you have a fresh furnace filter.
Use an insulation blanket on your hot water heater (if it needs one).
Keep blinds and curtains open on the sunny side of the house and closed on the other side.
Cook at home using the oven.
Microwave a hot water bottle before bed each night, then dip the temperature.

What else? Here are twelve additional useful steps for preventive maintenance for your home. These steps will help minimize the wear and tear of the changing of the seasons of your home, putting off potential major repairs for many years.

Call an HVAC professional to inspect your furnace and your ductwork. You should always do this before the first winter you spend in a house, as well as every few winters thereafter. It’s essential that your furnace remain in good working order with clean ductwork that’s in good repair, and a professional can properly evaluate things for you quite well.

Prepare your fireplace (if you have one). Make sure the chimney’s swept and that the damper opens and closes. Also, if your chimney is made of brick, examine the brick and mortar to make sure it’s in good repair. Have plenty of firewood cut and on hand for use. You may also want to install a screen on top of the chimney to keep pests out.

Check your roof shingles and do any minor repairs you can. Ice and snow buildup on a roof can wreak havoc, so make sure that your shingles are in good shape. At the very least, do a careful ground inspection of your roof, but it might be better to just go up there on a ladder and look around for yourself. Replace any worn out tiles you find.

Clean out your gutters. Similarly, when the temperature hovers around freezing and you’re facing a lot of melting and freezing water, clogging in your gutters can create a huge logjam of ice on your roof. Prevent most of this by cleaning out your gutters in advance of the winter season, removing leaves and bird nests.

Prepare your lawn-care and garden equipment for winter. Drain the oil and gas from your mower, tiller, and weed eater. Put into careful storage any lawn and garden equipment. Drain all of your hoses and put them into storage as well, as sitting water freezing and re-freezing inside a hose can really damage it.

Service your winter equipment. Make sure your snowblower starts up after you’ve properly tuned it and put gas and oil in it (as per the directions). You don’t want to go out there and fire up your snowblower for the first time and discover that it needs oil or new spark plugs.

Pull all vegetation away from your foundation. Vegetation near your foundation can continue to grow near the warmth of your home, possibly causing the roots to grow towards your foundation. Pull any vegetation near your foundation away from it to keep your foundation in good shape.

Check (or install) your carbon monoxide detector and smoke detectors. You should have a carbon monoxide detector near your furnace and a smoke detector in all rooms in the house. Check them all to make sure they’re in proper working order.

Trim any nearby trees. If you have tree limbs near your house, particularly ones anywhere near windows, trim them back. When they get weighted down with snow and ice, they’ll bend and perhaps break – and that can spell disaster for your windows or your roof.

Seal your driveway and deck. The constant freezing and thawing of a winter season can wreak havoc on unprotected outdoor surfaces. Spend some time in the next few weeks sealing your driveway and your deck to keep the freezing water from damaging your property.

Move in your potted plants. As the weather gets colder, your plants will be affected by the temperatures more and more. Move them inside for the winter and place them in an area with adequate lighting to ensure that they live through the cold season.

Prepare an emergency kit. Major winter storms can sometimes result in multi-day power outages. Have an emergency kit with plenty of flashlights, an emergency radio (that’s powered by batteries or hand crank), plenty of blankets, and some food and water on hand in an easily-available place.

So you’ve just moved into your nice new home. You’ve unloaded the boxes, unpacked most of your stuff, and are just starting to settle into your residence.

Right now is the perfect time to walk through a checklist of ways to save money on your home. Starting on these things as early as possible will allow you to start saving money sooner rather than later.

Here are eighteen things to check on or do immediately that will reduce the energy and maintenance costs of your home over the long haul.

1. Check the insulation in your attic – and install more if needed. If you have an unfinished attic, pop your head up there and take a look around. You should see some insulation up there, and there should be at least six inches of it everywhere (more if you live in the northern part of the United States). If there’s inadequate insulation up there – or the insulation you have appears damaged – install new insulation. Here’s a great guide from the Department of Energy on attic insulation, including specifics on how much you should have depending on where you live.

2. Lower the temperature on your hot water heater down to 120 degrees Fahrenheit (55 degrees Celsius). This is the optimum temperature for your hot water heater. Most people do not utilize water that’s hotter than that, and thus energy used to keep the water that hot isn’t effective. Lower the temperature, save some on your energy bill, and you’ll never skip a beat.

3. Toss a water heater blanket over that hot water heater as well. While most modern hot water heaters are well-insulated, some are insulated better than others and many older heaters aren’t insulated well at all. A small investment in a blanket for your water heater will slowly and gradually save you money on your heating bill over time by keeping the heat in the water instead of letting it spread slowly out into your utility closet.

4. Install ceiling fans in most rooms. Ceiling fans are a low-energy way to keep air moving in your home. Because of the air circulation effect, you can get away with keeping your thermostat a degree or two higher in summer and a degree or two lower in winter, netting a rather large savings. A while back, I wrote a guide to maximizing ceiling fan use – most importantly, the air directly below the fan should be blowing down on you in the summer and should be pulled upwards away from you in the winter – you can use the reversal switch on your fan to switch between the modes.

5. Wrap exposed water pipes with insulation. Exposed hot water pipes lose heat as they move water from your heater to your faucet. Insulating them makes a two to four degree difference in the temperature of the water and also allows hot water to reach your faucet faster. Check the pipes into and out of your hot water heater first, as the first three feet out of the heater (and the last few feet of inlet water) are key. Use good quality pipe insulation for the job – it’s actually quite simple. Find out more about water pipe insulation at the EERE website.

6. Install a programmable thermostat – and learn how to use it. A programmable thermostat allows you to schedule automatic increases and decreases in your home’s temperature. This lets your house naturally warm (or cool in the winter) while you’re at work or asleep, saving quite a bit of energy use, and then when it comes time for you to actively use the house, the thermostat automatically adjusts the temperature of your home back to what you prefer. Such devices save money on cooling in the summer and heating in the winter.

7. Hang a clothes rack in your laundry room (or, better yet, an outdoor clothesline). A clothes dryer can really eat up your energy costs, but it’s convenient for many people. Battle that convenience (and save money) by hanging a clothes rack from the wall in the laundry room and use it for some items – t-shirts and underwear dry great on clothes racks. If you can hang up 20% of the clothes in a load on this rack, you can get away with running the dryer 20% less than before, saving you cash. Even better: if you can, install a clothes line outside where the wind can catch it and hang most of your clothes outside.

8. Check all toilets and under-sink plumbing for leaks or constant running – and check faucets, too. Do a survey of the plumbing in your home before you settle in. If you find a toilet is running constantly, it’s going to cost you money – here’s how to easily fix that constantly-running toilet. You should also peek under the basin of all sinks in your home, just to make sure there aren’t any leaks. Got a leaky faucet? You should repair or replace any of those, because the drip-drip-drip of water is also a drip-drip-drip of money.

9. Replace your air handling filter. When you first move in, you almost always need to replace the air handling filter (don’t worry, it’s easy to do – it takes about ten seconds). Go down to your air handling unit, find where the filter is (it’s almost always a large rectangle), and mark down the measurements (printed around the edges). Then, go to the hardware store and pick up a few of these, then go home and install one of them, replacing the old one. An outdated filter not only doesn’t filter as well, it also has a negative impact on air flow, meaning your air handling system has to work harder to pump out lower quality air.

10. Make sure the vents in all rooms are clear of dust and obstructions. None of the vents in your home should be covered or blocked by anything – doing that makes your heating and cooling work overtime. You should also peek into all of your vents and make sure they’re as dust-free as possible, and brush them out if you see any dust bunnies. This improves air flow into the room, reducing the amount of blowing that needs to happen.

11. Mark any cracks in the basement with dated masking tape. Many homes have a few small cracks in their basement walls from the settling of the foundation and the weight of the house. In a stable home, the small cracks aren’t growing at all – they’re safe. If they’re growing, however, you’ll save a ton of money by getting the problem addressed now rather than later. Take some masking tape and cover up the end of any cracks you notice inside or outside, and write today’s date on the tape. Then, in a few months, check the tape – if you see a crack growing out of the end of the tape, you might have a problem and should call a specialist now before the problem gets out of hand.

12. Install CFL and LED light bulbs in some locations. CFL and LED bulbs can save you a lot of money on energy use over the long haul, plus they have much longer lives than normal incandescent bulbs. Consider installing some in various places – we usually use CFLs for hall lighting and LED bulbs for closet lighting (though LED bulbs are improving all the time…).

13. Choose energy efficient appliances, even if you have to pay more up front. Unless you were lucky enough to buy a fully-furnished home, you’ll likely have to do some appliance shopping. Focus on reliability and energy efficiency above all, even if that seriously increases the cost you have to pay up front. A refrigerator that uses little energy and lasts twenty years is far, far cheaper over the long run than a fridge that runs for seven years and guzzles electricity. (If you’re worried about the up-front cost, check out tip #17.)

14. Set up your home electronics with a SmartStrip or two. Looking forward to getting your television, cable box, DVD player, sound system, and video game console set up? When you do it, set things up with proper surge protection (to protect your equipment). You might also want to consider a SmartStrip, which allows the on-off status of one device (say, the television) to control whether or not there’s power flowing to other devices (say, the DVD player or the video game console). Having the power cut automatically from such auxiliary devices can save a lot of money over time, especially since many such devices eat quite a bit of power as they sit there in standby mode, constantly draining your money.

15. Air-seal your home. Look for any places where air may be leaking directly into or out of your home. These aren’t just air leaks – they’re money leaks. Thankfully, fixing small air leaks is pretty easy – here’s a great Department of Energy guide to caulking and weatherstripping, which will keep such air leaks from costing you.

16. Plant shade trees near your house. Shade trees naturally cool your home during those warm summer months, reducing the amount of direct rays that hit your house. Lowering the external temperature of your home saves significantly on your cooling bills during the summer, plus it increases your property value. Plant them now, so they’ll grow and shade your house sooner.

17. Take advantage of tax benefits for any improvements you make. For starters, there’s the first time home buyer tax credit, which is essentially an interest-free $7,500 loan from the federal government for new homeowners. This is perfect money to help you with fixes you may need to make when you move in, like buying good appliances or putting in shade trees. Similarly, if you make energy-based improvements to your home in 2009, you can receive up to $500 in tax credit for that purchase, essentially making things like insulation tax free. Your state may have even more benefits, so be aware of all of these when you invest money improving the efficiency of your home.

18. Develop a home maintenance checklist – and run through it for the first time. One final tip – create a home maintenance checklist. This list should include regular home maintenance tasks that you’d want to do on a monthly or quarterly or annual basis. Then, make it a habit to run through the items on this list each month. Doing so will extend the life of almost everything in your home, saving you buckets of money over time.

Any other tips along these lines from the readers?