Incentivized by a 200 basis point decline in mortgage rates, 14 million homeowners in America refinanced their mortgages between the second quarter of 2020 and the fourth quarter of 2021, according to a recent research report by the New York Fed.
Approximately 5 million homeowners extracted $430 billion in home equity from their cash-out refinancings ($81,000 on average), while 9 million received a rate-term refi and shaved more than $200 on average from their monthly mortgage payments.
All told, approximately one-third of outstanding mortgage balances got refinanced during the refi boom, and an additional 17% of mortgages outstanding were refreshed through home sales, the New York Fed found.
In other words, 50% of homeowners with a mortgage in America have little financial incentive to sell. They’re actually disincentivized given that they’d face a housing market where home prices are 36% higher than they were pre-pandemic and the cost of financing is up significantly.
It seems increasingly likely that the COVID refi boom will prove to be the most consequential event in housing in modern American history. It reset the board. Mortgage lenders were so successful at refinancing their own customers that they have a hugely diminished customer base just two years later. Some lenders won’t survive. Real estate brokerages have a related problem — transaction volume is down. Way down. Their bread-and-butter move-up customers can’t make the math work and/or are reluctant to give up what they’ve got.
Take my wife’s cousin Christopher, for example. Christopher and his spouse bought a townhouse in Charlotte, North Carolina, in 2021 and scored a mortgage rate in the 2.8% range. They want to start a family soon and would like more space and yard, but feel stuck. They don’t want to give up that mortgage rate. Although they could rent out the townhouse and make a profit, it wouldn’t be enough to offset the cost of a new home in the suburbs.
At this point, Christopher is waiting until a major life event happens or the market becomes much more favorable.
A lot of households are in this sort of holding pattern. In a recent survey by Realtor.com, 82% of 1,200 potential sellers felt “locked in” by their currently low mortgage rate.
So where do housing pros turn? There’s always the first-time homebuyers who are ready to take the leap. And a proportion of people will move for new jobs, divorce, death of a spouse, etc. But the fact that most home sellers also need to buy at the same time complicates matters and will suppress transaction volume until affordability improves.
The medium-term answer may rest with the boomers (since they have all the money). In that aforementioned Realtor.com survey of potential sellers, more than half of those who identified themselves as boomers said they did not feel “locked in” by their current mortgage rate. (It’s worth noting that 87% of Gen Xers said they did feel locked in, but one-third said they planned to sell anyway, perhaps because they have lower debt levels.)
A related potential target is the roughly 40% of households that don’t have a mortgage and own their property “free and clear,” according to Census Bureau data. This group tends to be older and must plan out their final chapter in life. That might mean moving to be closer to family and downsizing, extracting equity from their home to pay for age-in-place upgrades (HELOCs and reverse mortgages), or finding a more affordable lifestyle in a cheaper area. If we’re going to see inventory unlocked, this is one segment it will have to come from.
Where do you think existing home inventory will come from? And when? Share your thoughts with me at [email protected].
In our weeklyDataDigest newsletter, HW Media Managing Editor James Kleimann breaks down the biggest stories in housing through a data lens. Sign up here! Have a subject in mind? Email him at [email protected]
This is a guest post from the Millionaire Mommy Next Door. At her blog, MMND shares her recipe for success, happiness, and financial freedom. This piece originally appeared on her site in a slightly different format.
When my husband and I married (at age 23), I was working as an office assistant at a veterinary hospital earning $7.50 per hour. Unsatisfied with my low wages, I brainstormed ways to generate extra income.
Going to the Dogs
I had worked as a volunteer dog-trainer for the Humane Society since age 14, so I combined my experience and youthful exuberance into a part-time side business. I offered dog-training classes and taught them in the veterinary hospital’s backyard. It was a win-win situation: my employers had a new service to offer their clients, and I was self-employed, with very low operating expenses.
I soon added home- and pet-sitting to the services I provided. Within about a year, my part-time business was earning more than my full-time wages at the veterinary hospital, so I quit my job. Over the next few years, I expanded my business and hired a few part-time employees. It was at that point that I discovered the joys of working from home in my pajamas.
In the Pipes
Meanwhile, my husband served as a company-employed plumber working for hourly wages, earning $30,000 to $35,000 a year.
At age 30, I sold my dog-training and pet-care business (for about $75,000) and we launched a plumbing and heating business of our own. My husband served as the project estimator and plumber; I was the business manager and bookkeeper.
Our customers quickly spread the word about our new plumbing company. Within our first year, we had generated enough business (via personal referrals) to keep us busy and profitable. Building a business based on personal referrals completely eliminated the need for us to spend a dime on advertising.
Doing the Math
We soon faced an important decision. Should we expand our services by hiring other plumbers? Here are the two options we considered:
Option A: Continue to manage a small in-home business operated by:
1 full-time plumber (my husband; 40 hrs/wk)
1 part-time apprentice (20 hrs/wk)
1 part-time bookkeeper (me; 5-10 hrs/wk)
With this model, we could earn $250,000 annual gross revenue with 50% net profit (low overhead expenses means a higher percentage of revenue remains as profit).
~or~
Option B: Manage a storefront business operated by:
5 full-time plumbers (200 hrs/wk)
2.5 full-time apprentices (100 hrs/wk)
1 full-time bookkeeper (40 hrs/wk)
1 full-time manager (40 hrs/wk)
Under this scenario, we would earn $1,250,000 annual gross revenue (5 times more revenue, with 5 plumbers, than Option A above) with 10% net profit (higher overhead expenses means a lower percentage of revenue remains as profit).
Which business would you rather own? At first glance, most would likely say, “I’ll take the business that makes one-and-a-quarter million dollars each year!”
Whoa now, let’s slow down and do the math:
Option A: Small in-home business brings in $250,000 gross revenue and nets 50% profit = $125,000 annual net profit.
Option B: Larger storefront business brings in $1,250,000 gross revenue and nets 10% profit = $125,000 annual net profit.
Now that you’ve checked the math, which would you choose?
My husband and I chose Option A. Option A comes with fewer expenditures of time, energy and capital, as well as reduced risk. Option A nets the same profit as option B. As a bonus, option A allowed me to continue working at home in my pajamas.
Of course, if we hired 10 plumbers, we might make significantly more income. However, upon evaluating our priorities and values, my husband and I decided that we already made enough. We made the choice to work less rather than grow our business. In other words, a balanced lifestyle was, and still is, more important to us than money.
Learning to Invest
Since our plumbing business required only 5-10 hours/week of my time for bookkeeping tasks, I decided to learn how to invest on my own (without assistance from our broker). I dedicated almost two years to the study of equity investing via books, web sites, and conversations with investors. Once I had acquired the knowledge, confidence and skills necessary to invest successfully on my own, I fired our broker, saving us thousands of dollars in commissions and fees.
Once we reached our crossover point (the average annual return from our investment portfolio exceeded our annual expenses, plus inflation), we scaled back on our business. My husband currently works only two or three days a week. Now, he can be selective in the projects he accepts. For instance, he no longer unplugs toilets, but he still enjoys creative remodeling projects. If he chooses to retire or to do something completely different, we’ll sell our plumbing business.
Achieving Financial Freedom
Before traveling to China to bring our new daughter home, I hired a bookkeeper to replace me so that I could focus my time, energy and attention on parenting and pursuing my hobbies. Additionally, I’ve learned how to effectively manage our investment portfolio in such a way that this task requires just one or two hours per month of my time.
We have truly attained freedom, financial and otherwise. Whether it be work, parenting, or play, we wake eager to spend each new day doing whatever we choose. What a gift!
Recommended reading:
Want to learn my recipe for success, happiness, and a million dollars? Start here: Baby Steps to Financial Freedom.
My mother was quadriplegic by the time I was in high school. My dad was a real estate agent who worked on commission, so he worked long hours to make ends meet. As a result, I took on a lot of responsibility at a young age.
I cooked and cleaned and did all the grocery shopping. I did the laundry and paid the bills (in the “balancing the checkbook and writing the checks” sense, not the earning money sense). I took my mother to the bathroom, fed her, and tracked her pill regimen. And most importantly, I believed that a college education was a good value.
I knew my parents couldn’t afford to send me to college, and I wasn’t allowed to have a job because of my responsibilities at home. So in lieu of saving for college, I threw myself into everything school had to offer.
I was salutatorian. I was on the dance team and the academic team. I was secretary of the service club and president of the math club. And it worked: not only did I get out, I graduated from college with a 4.0. Then I went on to get an MA and a PhD. Unfortunately, I got $100K in debt to go along with it.
I mention this only because it begs the question: what leads a (relatively) smart person to make almost ten years’ worth of poor financial decisions? As immoral as universities may be, there’s more to any individual’s decisions than external influence.
Undergrad: An Auspicious Beginning?
When she was young and healthy, my mother had a full ride to Boston University. She dropped out because she wasn’t doing well in her pre-med classes; what she really enjoyed was writing. I remember asking her, “Why didn’t you just change your major?” She said it never occurred to her.
She eventually did get an Associate’s degree from the local community college. However, she always regretted not completing a Bachelor’s degree. Her experience led her to believe that the best degree was the one that you finished. She also believed that if you picked something you enjoyed, you were more likely to do well and be happy.
When I started thinking about college, my dad said “smart people major in business.” He suggested, “not that I’m telling you to follow in my footsteps, but female real estate agents make a lot of money.” My mom would nod sagely at his advice. Then after he left the room, she would stage-whisper, “do whatever makes you happy!”
I attended a state school, since the Florida Bright Futures lottery scholarship paid for 100% of my tuition and a book allowance. I was a National Merit Finalist. I received Pell grants and a variety of other scholarships. Since my education was paid for regardless of major, I followed my mom’s advice and did what made me happy. I was a creative writing major and a psychology minor. I worked as a server and a tutor at the writing center. As a result, I graduated with no debt.
Grad School: The Downward Spiral Begins
I was intimidated by the thought of graduating and getting a “real job.” Instead, I decided to keep doing what I had always been successful at: school. I started an MA in creative writing. I also worked on campus 35 hours a week, teaching and tutoring. However, graduate tuition was expensive. Luckily, Stafford was there to fill the hole. I knew it was a loan, but I’d never borrowed any money before. I didn’t have a concept of what borrowing really meant in terms of paying it back.
During this time I loved my job so much that I decided I wanted to run a writing center. My boss had a PhD in rhetoric and composition. I researched programs, applied to three, and accepted an offer from a top five program. It entailed moving across the country, which I couldn’t afford; I wouldn’t get financial aid until fall. Enter credit card debt.
The cost of living in my new city was also much higher. Again, Stafford and Visa filled the hole (though there were still a couple of weeks between moving and financial aid kicking in where I didn’t wash my hair because I couldn’t afford shampoo).
Yes, I was taking out more loans. But I was only making $14,000 a year and my paychecks were $750 apiece. The average starting salary of $50,000 was three and a half times what I was making. That could only mean my paychecks would be three and a half times bigger. Right?
Somehow the fact that this $14,000 was spread over nine months instead of twelve didn’t seem significant. Taxes and payroll deductions for things like health insurance weren’t even on my radar. I also don’t recall a single time when I saw a total of how much I’d borrowed until my degree was almost complete.
Graduation Approaches: I’m in Over My Head
Even when I saw my total of about $100,000, it was poor math all the way. I thought, Okay, I was in grad school for eight years. That means I borrowed an average of $12,500 per year. I was also making $14,000 per year during that time, so my average income was $26,500 per year. But soon I’ll be making $50,000. That’s twice as much! This is no problem.
My program also claimed it had a 100% tenure-track job placement rate. It didn’t occur to me that this couldn’t be possible until after I was advanced to candidacy and took a job search class. Then, this statistic was amended to “100% of students who wanted to be on the tenure track ended up with tenure-track jobs.” Who doesn’t want tenure?! I thought. This won’t be me. This is no problem.
I did know, of course, that getting a PhD in the humanities wasn’t going to make me rich (although the professors in my program all had 3000+ square foot homes in the nicest area of town). But it was more important to be happy than to be rich. Besides, I grew up poor. I was familiar with it. It didn’t sound scary.
Then I went on the job market. My hottest lead turned out to be in Punxsutawney, Pennsylvania, and I had a few realizations. I didn’t want to live 200 miles from the nearest urban center. Not only that, I couldn’t even if I wanted to: Jake and I had been dating for over a year. Our relationship was getting serious enough that he needed to be a factor in my plans.
By this time he’d graduated from law school and had a job making $90,000 per year. He was traumatized from the bar exam. The thought of taking another one only a year later gave him cold sweats. Even if he was willing to do it, he couldn’t afford to make much less. A salary of $90,000 a year would be impossible to come by in a tiny rural town. Now my job search was what they called Geographically Restricted. That’s academic speak for “it’s your own fault if you don’t end up on the tenure track.”
Suddenly, Unexpectedly
So I moved to Jake’s city and geared up for another year on the job market. I got a full-time administrative position in summer 2008, right before the economy tanked. The week after they hired me, my institution implemented a hiring freeze. Six months later, they instituted furlough.
I combed the national job lists in my field, but I was Geographically Restricted. Even if I wasn’t, it was one of the worst job markets in memory (and memory didn’t have a lot of good years anyway). And then, there was the unexpected — though, given that I think I’m psychologically predisposed to happiness, maybe I should have expected it.
It turns out I LOVE my job. I love the work I do and the people I work with. I love the city I live in (even if it’s 109 degrees outside right now). I have family in the area. Jake grew up here. At this point, he has over five years of business connections here, and I have four.
At some point, the the life I was living “for now” had become The Life I Want to Live. I have a ten minute commute. I leave work at 5 p.m. every day and don’t need to think about it until the next morning. I don’t check email during my off hours. I don’t work in the evenings. I have pets, I am a hobby chef, I read novels. I think I would have enjoyed the tenure track, but I don’t need it to be happy.
I just need to get our financial situation under control so I can keep living this life.
What About You?
This is my story. This is only my story. I cannot speak for others with student loan debt. But I know many, many people with high student loan debt (including lots of folks with totals higher than mine). So I know you’re out there, fellow student loan debtors!
Let’s build on last week’s discussion (go check out the comments there as well!). What’s your situation? How is it different than mine? How is it similar? I am especially interested in:
Your total student loan debt
What degree(s) you have
When you went to school
Whether anyone talked to you about student debt or the job prospects in your field
Whether the information you received about student loan debt or the job prospects in your field was accurate
What you wish you had done differently/advice for others
How you’re dealing with your debt
There are obviously many decisions I could have made differently. It’s undeniable. But since I can’t go back in time and make different decisions, I’m declaring a statute of limitations on regret. Plus, I’m taking responsibility for my errors in judgment and paying the loans back. I have to, since you can’t discharge student debt in bankruptcy.
However, as Robert Brokamp pointed out, there are systemic problems with student debt in this country (check out this paper for some facts on six-figure student loan debt). Those of you who have been through the system, how would you change it?
American Fork senior Darcy Wilson cuts the ceremonial ribbon outside a house in American Fork built and designed by Alpine School District students. The celebration was held Thursday, May 11, 2023.
Students and others stand outside a house in American Fork built and designed by Alpine School District students. The celebration was held Thursday, May 11, 2023.
American Fork senior Craig Anderson, far left, and Lone Peak senior Julien Ortiz fist-bump each other during an open house and ribbon cutting for a house in American Fork built and designed by Alpine School District students. The celebration was held Thursday, May 11, 2023.
Alpine School District construction students, along with friends and family, walk through a house in American Fork on Thursday, May 11, 2023. The house was built and designed by the students.
People attend an open house and ribbon cutting for a house in American Fork built and designed by Alpine School District students. The celebration was held Thursday, May 11, 2023.
Alpine School District construction students, along with friends and family, walk through a house in American Fork on Thursday, May 11, 2023. The house was built and designed by the students.
Tricia Broadbent, interior design teacher at Lone Peak High School, speaks at an open house and ribbon cutting for a house in American Fork built and designed by Alpine School District students. The celebration was held Thursday, May 11, 2023.
Guy Burdett, construction teacher at Lone Peak High School, speaks at an open house and ribbon cutting for a house in American Fork built and designed by Alpine School District students. The celebration was held Thursday, May 11, 2023.
Harrison Epstein, Daily Herald
American Fork senior Darcy Wilson cuts the ceremonial ribbon outside a house in American Fork built and designed by Alpine School District students. The celebration was held Thursday, May 11, 2023.
Students from six northern Utah County high schools spent the last school year putting their skills to the test. Now, their work is on display. Construction and interior design classes worked on building and decorating these homes through the Career and Technical Education program in the Alpine School District.
Every member of the project, including the construction students present for Thursday’s ribbon cutting on the home’s front porch, held a part of the project with them. For some, it was the opportunity to get out of the classroom and work with their hands, for others being able to one-up a classmate was always a win. Some, like Julien Ortiz of Lone Peak High School, will use the class as a foundation for the rest of their lives.
“I really liked learning how to put things together and work with other people,” Ortiz said. “I can tell it will be the key to my future.”
Students from across the district are invited to take the class from Lone Peak High School teachers Guy Burdett, construction, and Tricia Broadbent, interior design. The 28 participating students came from Lone Peak, American Fork, Skyridge, Lehi, Westlake and Cedar Valley high schools.
The program gives priority to seniors who are on track to graduate because students spend four class periods on site on the days they have the class.
Harrison Epstein, Daily Herald
Students and others stand outside a house in American Fork built and designed by Alpine School District students. The celebration was held Thursday, May 11, 2023.
“It amazes me every year that this actually happens. We take these young people that were learning how to use a tape measure, and we end up with a house,” Burdett said.
Burdett’s main goal for the project was that students did things right, maybe not the first time, but that they would keep coming back until they did. Students did not have to think about cutting corners to save money as the funds to purchase the lot and any materials come from the sale of the previous year’s homes.
“I just love that this class, it’s not a science class where you do the same thing every day, it’s not a math class where it’s repetition, but it’s more of just a community and family lifestyle where you can come and help and have a good time,” said Jackson Wright, a student from Lehi High School.
Appliances in the house for the display were provided by Hutch’s Home Furnishings, who allowed the students to pick out furniture on loan to decorate the home. Decor was loaned by Slope House Mercantile and styled by the students.
A core part of the curriculum focuses on using the six C’s – collaborating, communicating, critical thinking, content, creative innovation and confidence.
Harrison Epstein, Daily Herald
American Fork senior Craig Anderson, far left, and Lone Peak senior Julien Ortiz fist-bump each other during an open house and ribbon cutting for a house in American Fork built and designed by Alpine School District students. The celebration was held Thursday, May 11, 2023.
“I have a lot of students who are interested in going into design, whether it’s commercial design or hospitality design in my class. And I feel like they’re the cream of the crop. So we are just grateful for the support that we get from the parents, from all the schools and the district, and that this is able to happen,” Broadbent said.
Michelle Price, the CTE director, said the home will be listed for sale in the coming weeks and that the district is actively searching for a lot — and developer to partner with — to build next year’s home.
While Thursday’s event allowed the construction students and their families to tour the home, a similar celebration for the interior design students and their families is scheduled for Friday.
The north home is located at 748 South 290 West in American Fork. The south home is located at 1039 East 200 North in Orem and will be open for tours and a similar celebration on Thursday from 1-7 p.m.
Alpine School District construction students, along with friends and family, walk through a house in American Fork on Thursday, May 11, 2023. The house was built and designed by the students.
People attend an open house and ribbon cutting for a house in American Fork built and designed by Alpine School District students. The celebration was held Thursday, May 11, 2023.
Alpine School District construction students, along with friends and family, walk through a house in American Fork on Thursday, May 11, 2023. The house was built and designed by the students.
Tricia Broadbent, interior design teacher at Lone Peak High School, speaks at an open house and ribbon cutting for a house in American Fork built and designed by Alpine School District students. The celebration was held Thursday, May 11, 2023.
Guy Burdett, construction teacher at Lone Peak High School, speaks at an open house and ribbon cutting for a house in American Fork built and designed by Alpine School District students. The celebration was held Thursday, May 11, 2023.
Save more, spend smarter, and make your money go further
Being a personal finance writer, I thought a lot about how my husband and I (who I married just a few short weeks ago) would merge our finances. Despite writing about finance daily over the last seven years, it may shock some that even after living together for a year and a half pre-marriage, we waited until we were legally husband and wife to merge any element of our finances.
But that’s not to say we didn’t discuss money along the way. In fact, having open and honest discussions pre-marriage has helped us sail smoothly into our first year of married life, although getting there wasn’t without its trials.
#RealMoneyTalk When You’re Dating
As privy as I am to the most intimate details of people’s finances, getting to the point where I felt comfortable talking about my own took longer than I thought. I’d never been at the point in the relationship with anyone else prior to meeting my husband.
I always admire couples who know they’re getting serious and decide to just lay it all out there. My friend and fellow blogger and author Erin Lowry famously calls this “getting financially naked.”
But for me and my now-husband, our overall approach to money talk was like peeling back the layers of the onion. Slowly, as we became more comfortable, we began to let one another “in” to our respective money situations a little bit more, and perhaps now I prefer this approach.
Here are the most common money conversations couples have when they’ dating:
As the relationship progresses, eventually you’ll discuss more serious conversations like moving in together, and how much you can afford jointly and how you’ll split the bills. You’ll have to discuss credit scores (if you apply jointly for a loan) and how you’ll split payment for items like furniture or a new television.
#RealMoneyTalk in Marriage
The #RealMoneyTalk you and any new partner you’re dating might be initially uncomfortable, largely because everything is so fresh and you’re still getting to know one another. But it can be awkward still once you’re married and the “real money talk” becomes “actual money practices.”
Here’s what my husband and I have covered so far in the short time we’ve been married:
Our savings goal and how we’ll get there together
How we’ll spend for our fixed expenses and utilities
How we’ll handle our personal spending (video games for him, Sephora runs for me)
Saving for retirement
But it hasn’t been a breeze.
For example, my husband and I applied for a mortgage and for the first time he found out my actual credit score (it’s 720) but his was over 800 and my score cost us a lower interest rate. He teased me about it, but I still remember feeling slightly anxious and embarrassed. Revealing details about your personal money situation is no joke, even if you’re willing and prepared.
I also remember those first feelings of indignation when my partner would see packages from Sephora arrive and comment on their frequency or remind me to pay the water bill.
We were both older when we met: both in our 30’s, we both owned homes, had both (unsuccessfully) lived with other partners, both paid off significant amounts of debt (him his law school student loans, me and my credit card debt.) The slow pace of our financial merger was due, in part, because we’d both been managing our finances completely on our own for over ten years and were comfortable and strongly preferred doing things a certain way.
We’d cleared the hard money convos, but we were both set in our own financial patterns and habits. In the end, it took us coming to the table with our feelings around money, instead of actual numbers that helped us get on the same page and start fresh managing money as a team. It’s different than how others would do it, but it’s how we’ve done it and it works for us – which is the most important goal.
Perhaps, I’m so enamored with how couples manage money because, quite frankly, I’ve never met two couples who managed it in exactly the same way. There’s the couple where one partner is the only earner, and the other stays at home yet completely controls the bank account. I met a couple who even after having several children still split everything 50/50 (“Do you Venmo one another for diapers?” I asked, “Yes.” She replied.) I even met a couple who has just one joint bank account and both agreed they’d never spent a day fighting about money.
Fascinating, right?
No matter how you and your partner decide to manage your finances, remember that the first step is getting the courage to have the talk.
Save more, spend smarter, and make your money go further
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During an extended hiatus from the grind of commercial fashion design, Tantuvi founder Arati Rao found herself in her mother country of India, where both her parents were born. There, after a visit to the northern craftsman communities in the country, the inspiration struck for her rug and textile business, one that works directly with seventh-generation master weavers in India on its colorful, heirloom-worthy designs. Launched in 2015, Tantuvi offers intricately patterned weavings that take cues from art, nature, math, and architecture—including multi-hued agate rugs and cubic throws. You can even customize your own rug if you have grand ideas on how to optimize your floor space.
On the New York town Beacon’s Main Street, a mile-long strip of small businesses, eateries, and makers, there’s a new reason to meander: the charming home decor store on the west end called Little King. Husband and husband team Jeremy King (a pastry chef, formerly of Dover Street Market’s Rose Bakery in LA) and Ken Baldwin—a creative director who has spent nearly two decades in the beauty and fashion industry elevating the branding and design at places like Josie Maran and Gap—set up shop in late 2021. It’s one part market, one part cafe that serves up fresh coffee and pastries while you browse, with visual sustenance coming in the form of a bevy of colorful accessories like Fredericks & Mae cutting boards, littala Aalto vases, and Marimekko towels. Pop-ups from businesses like modern hardware store Yuns will also be coming through periodically, and there’s plenty more to explore online if you can’t make it out to the Hudson Valley.
Save more, spend smarter, and make your money go further
Let’s do a little investment simulation. Don’t worry—I’ll do the math.
Jane has a $5000 consumer loan and a $20,000 stock portfolio. Her net worth is $15,000. (Ah, the simple life of a person in a word problem.)
If the stock market goes up 10%, Jane makes $2,000 and her net worth goes up to $17,000 ($22,000 in the portfolio, minus the $5000 loan).
If the market goes down 10%, Jane loses $2000. Are you with me so far?
Jane decides to pay off the loan. Her net worth is still $15,000, but now it’s $15,000 in stocks and no debt. Then the stock market goes down 10%, and Jane only loses $1500. By paying off the loan (a financial nerd would call it “deleveraging”), Jane’s portfolio got less risky: The same change in the market caused a smaller change in her portfolio, even though her net worth stayed the same.
It doesn’t matter that Jane borrowed the money for a dining room set. As long as she owes the money, she’s taking on more investment risk than if she didn’t owe it. Her net worth fluctuates more with each day’s stock returns because of the debt. That’s not necessarily good or bad (maybe Jane wants to take on more risk in the hope of getting a bigger return) but it’s a mathematical fact.
This is all grade school math, right? But if we replace “consumer loan” with “mortgage,” somehow it makes otherwise intelligent people, investors and financial planners alike, forget basic arithmetic.
“Investing on mortgage”
I’ll include myself among the mathematical amnesiacs, because I only came to understand this principle because of a recent blog post by Michael Kitces, director of research for Pinnacle Advisory Group, who writes the Nerd’s Eye View blog.
The post is written with financial planners in mind, not consumers, so I’m going to summarize it as follows: If you have both a mortgage and an investment portfolio, you’re probably making a big mistake. A big, fat, Greek default-style mistake.
Let’s go back to Jane. Now she has a $100,000 mortgage, a $100,000 house, and a $200,000 stock portfolio. Her net worth is $200,000 (the portfolio plus the house, minus the mortgage). When the stock market goes up 10%, Jane makes $20,000. When it goes down 10%, she loses $20,000.
Say Jane takes $100,000 from her portfolio and pays off the house. Her net worth is still $200,000, but her portfolio has dropped to $100,000. Now when the stock market goes down 10%, Jane only loses $10,000. Her portfolio got less risky, but her net worth stayed the same. (Yes, we’re assuming remarkable stability in the real estate market.)
Jane would tell you that she wasn’t borrowing money to invest in stocks, she was borrowing money to buy a house. Well, her portfolio and her bank don’t give a hoot. As long as she owes money, her investment performance has a bigger effect on her bottom line than if she didn’t owe.
After paying off her mortgage, Jane comes to you for financial advice. She’s thinking of taking out a new fixed-rate home equity loan to plump her portfolio back up to $200,000. What is she, insane? If she’d decided not pay off her mortgage in the first place, she’d be in exactly the same position, with the blessing of most financial planners and, until recently, me.
Whether Jane knows it or not, she is borrowing against her house to invest in the stock market, and she should understand the risks.
So what?
That sounded like a lot of academic drivel, I know. But if you’re a homeowner with a mortgage, it has real implications for your financial health. Assuming you’re in a position to save money beyond your mortgage payment, you are making a scaled down version of Jane’s decision every month: Pay down the mortgage, invest for retirement, or both?
“Each and every year I get to make a conscious decision about whether I want to implicitly buy stocks on mortgage by keeping the mortgage and buying stocks,” says Kitces. Or bonds, for that matter. Look at what you’re really doing:
Using borrowed money to buy bonds is stupid. Sure, mortgage rates are low. Bond rates are lower. Would you take out a 4% mortgage to buy bonds paying 2%? Me neither.
Using borrowed money to buy stocks is dangerous. Stocks are risky. Stocks bought with borrowed money are more risky. If you walk into a reputable financial planner’s office and tell them your financial plan is to borrow a bunch of money to invest in stocks, they will sit you down and give you a parental lecture about imprudent risk-taking. But if you’re using mortgage money to juice up your portfolio, somehow that’s okay?
Implicit in the idea that it’s okay to buy stocks “on mortgage,” as Kitces puts it, is the belief that stocks will definitely outperform in the long run. Jorie Johnson, a certified financial planner in Manasquan, New Jersey, doesn’t take a client’s mortgage into account when setting up their investment portfolio for this reason. “As long as you have a reasonable expectation of doing better in the market than your mortgage interest rate, you should be putting the money in the market,” she says.
However, this a point both technical and practical. If your goal is to shoot for the moon in your retirement portfolio by ratcheting up the risk with borrowed money, there’s a cheaper way to do the same thing by maintaining a smaller, but riskier, portfolio: Pay down the mortgage, but own more stocks and fewer bonds. You’ll lower your risk of ending up with negative home equity, save on mortgage interest, and achieve the same level of portfolio risk, with the same expected returns.
“Taking on more portfolio risk is the equivalent of having less portfolio risk but more leverage,” says Don St. Clair, a certified financial planner in Roseville, California. “If you’re not willing to take some of your portfolio and pay off your debt and jack the risk of your portfolio back up, then you shouldn’t be willing to keep the same portfolio and not pay off your debt.”
The good old days
So, if you shouldn’t use borrowed money to buy stocks or bonds, what should you use it for?
Kitces just bought a house, and here’s his answer. “I’m really going to spend the bulk of the next ten years knocking this mortgage down to zero,” he says. “We are radically ratcheting down savings into investment accounts and really ratcheting up payments toward the mortgage.”
This feels intuitively wrong, doesn’t it? Everybody knows you should make retirement saving a habit and do it faithfully, month after month. Accelerating mortgage payments so you end up with a paid-off house and very little in other assets beyond an emergency fund and your 401(k) match can’t be a good idea, can it?
Just a couple of decades ago, it wasn’t just a good idea; it was conventional wisdom. “It was really straightforward: You built a giant down payment, you took on as little debt as possible, and whatever you did take on in debt, you knocked it out as quickly as possible,” says Kitces. “And when you actually got it done, you literally held a party and burned the mortgage note in your fireplace.”
Can anyone really say that isn’t still good advice? Oh, don’t explain it to me. Explain it to the Las Vegas homeowner who is $100,000 underwater. Nobody needs to be told how toxic negative equity is in 2011, right? If anything, positive home equity offers more flexibility than a 401(k) balance. “They have home equity line of credit options, the ability to move, the ability to relocate, and the financial freedom to make decisions,” says Kitces.
My money is trapped!
Now, wait a minute. Presumably, your investment portfolio is inside a 401(k) or IRA or some other box with “do not open until retirement” stamped on it. It would be crazy to pay the 10% penalty and a huge wad of taxes just to knock off a chunk of your mortgage.
I agree. So while you have a mortgage, what do you do with this money? You invest it in a way that reflects the fact that you’re playing with borrowed money. In other words, Johnny Mortgage’s portfolio should be invested heavily in bonds and cash. Remember that they’re not really bonds and cash. They’re stocks wearing disguises, because a portfolio of low-risk assets bought on leverage is still high-risk.
Even though it doesn’t often feel like it, a mortgage has an end. Later, when the mortgage is nothing but fireplace ashes, you can direct 100% of your former mortgage payment into your retirement savings.
But mortgages are special
Mortgages are weird. Nowhere else in the world of finance can you get a 30-year fixed-rate loan with tax-deductible interest and the option to refinance if rates drop. Of all the kinds of debt, I’d probably agree that this is the best one to use to invest on leverage.
That still doesn’t make mortgage debt cute and cuddly. As the 23% of homeowners who are underwater know, mortgage debt can still bite you right where it hurts. Nearly all of those homeowners would have been better off paying down the mortgage rather than investing, or just keeping their investments in cash. (Yes, I know plenty of them did neither, which compounds the injury.)
Oh, there is one last wrinkle. In most states, you can walk away from a mortgage. The bank will take your house but can’t come after your other assets. As a forward-looking strategy, however, strategic default sucks. (Sorry for the parent lecture.) “Is your strategy for wealth creation really that you should buy real estate with as much debt as you can, because if it goes badly you can stick it to the bank?” says Kitces. “I don’t think that’s really how we’re telling people to build wealth.”
What do you think? Is there any defensible reason to buy stocks or bonds “on mortgage”? Or has everyone already forgotten 2008?
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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.
This week’s episode continues our nerdy deep dive into how climate change will affect your money.
Check out this episode on either of these platforms:
Our take
Few people enjoy thinking about home and renters insurance — it’s admittedly not the most riveting subject. But climate change has upended the calculus involved with protecting our home and belongings from natural disasters, and many homeowners and renters are discovering this only after it’s too late. Homeowners in areas at risk for wildfire and hurricanes are finding it harder to insure their homes, while others have learned the hard way that their home and renters insurance does not cover damage from flooding.
In the second episode of our nerdy deep dive into the intersections of personal finance and climate change, NerdWallet insurance editor Caitlin Constantine talks with Nerd Holden Lewis, who covers all things housing and mortgages. They explore the impact climate change is having on home insurance markets around the United States and what that means for prospective and current homeowners. They also discuss the risks of being underinsured and how to make sure you have enough insurance to cover your home and belongings, as well as why you should consider flood insurance even if you don’t think you need it.
Caitlin also speaks with Matthew Eby, founder and CEO of First Street Foundation, a nonprofit research and technology company that has developed a tool to help homeowners better understand climate-related risks like flooding, wildfire and extreme heat. They dig into some common misconceptions about flooding risk and flood zones, as well as some strategies that homeowners can use to better assess their risk and to protect their homes from potential disaster.
More about insurance on NerdWallet:
Sean Pyles: Let’s say a freak storm is headed your way and there’s a chance it could wipe out your home. Homeowner or renter, are you covered? Are you sure?
Holden Lewis: The standard homeowners policies don’t cover floods, and that means that they don’t cover rising water. They do cover falling water. If your roof blows off and rain falls inside, they’ll cover that. But that’s just one type of under insurance that people have.
Sean Pyles: Welcome to the NerdWallet Smart Money podcast. I’m Sean Pyles.
Caitlin Constantine: And I’m Caitlin Constantine.
Sean Pyles: We’re back with episode two of our nerdy deep dive into the broad effects of climate change on our financial lives. Caitlin, I know you’re going to talk about this more in a little bit, but you’ve had your own brushes with housing disaster, right?
Caitlin Constantine: Yeah, so I’ll go into depth in this during the episode, but I lived in coastal Florida for more than 20 years. During that time, I also worked for quite some time in local news. So I’ve lived through multiple hurricanes and tropical storms, and I’ve also reported on the damage that they can cause. And I’ve actually been pretty lucky to have never lost my house, but I’ve seen firsthand how these storms can really cause a lot of chaos and destruction, and how the effects of those storms last for years long after the storm has passed.
Sean Pyles: OK, so can you tell us why we’re doing a whole episode on housing?
Caitlin Constantine: Sure. For most people, their house is their biggest expense, and for a lot of us it’s also our biggest and most valuable asset. And regardless of whether you’re renting or owning your home, it’s usually way up there on the list of things that take money out of your bank account. And the risks around climate change for homeowners are especially fraught because of insurance costs.
Sean Pyles: Right. And it can be hard to fully understand what you need to know about the kinds of coverage and policies that will help protect your assets from climate risk. And, Caitlin, I don’t know about you, but I did not get a Ph.D. in risk evaluation as part of my schooling, and I’m a homeowner.
Caitlin Constantine: And I didn’t either. Although a Ph.D. in risk evaluation might make my job a little easier sometimes.
Sean Pyles: Yeah, I imagine.
Caitlin Constantine: But honestly, sometimes it really does feel like you might need that Ph.D. because climate change is affecting so many parts of our lives, including decisions about where we choose to live. And a lot of it’s really kind of unknown, which is what leads to people having a lot of uncertainty and anxiety around these issues.
Sean Pyles: All right. Well, before we dive in, we want to remind our listeners to tell us what you think. Share your ideas, concerns and hopefully some solutions around climate change and finance with us. Leave a voicemail or text the Nerd hotline at 901-730-6373. That’s 901-730-NERD. Or email a voice memo to [email protected].
Caitlin Constantine: Yeah, I would really love to hear from people who have stories about how climate change or a natural disaster has affected how they think about homeownership and where they want to live.
OK. So our first guest is fellow Nerd, Holden Lewis. Holden covers all things housing and mortgages. Welcome back to Smart Money, Holden.
Holden Lewis: Hey, it’s a pleasure to be here.
Caitlin Constantine: So we’re here today to talk about how climate change is actively affecting the housing market here in the U.S. Clearly, we’ve all seen some of the catastrophic damage from natural disasters like flooding, fires, the tornadoes that have ripped through the Southeast this spring. But can you give us a sense of what’s happening even more broadly? And then we’ll get into some of these details.
Holden Lewis: Sure. If you could move anywhere, it would really be a good idea to consider the role of climate change in where you live, because places all over the country are affected by disasters and that they seem to be exacerbated by climate change. I live on Florida’s East Coast and climate change is at the top of my mind because of hurricanes. Experts have said that climate change makes hurricanes wetter. I think we saw that especially in 2017 when that hurricane hits Houston and just parked itself over there and flooded everything. Hurricanes are just, they’re dropping more rain. And then with sea level rise, storm surges are pushing water farther inland, but storm surge isn’t the only kind of flooding to worry about because heavy rainfall causes rivers and creeks to overflow their banks and that causes flooding. And then there’s something called pluvial flooding, which is what happens when it rains faster than the water can drain away.
But water isn’t the only problem. Because of prolonged droughts, we see more wildfires in the West. They’ve wiped out entire towns and they pollute the air enough to cause danger to people’s health. So there is a lot to consider. And despite all these issues, people are moving into these high-risk areas. We have 40% of Americans live in coastal area. People are moving to places with high and extreme heat like Austin and Phoenix. And 30% of American homes are in wildlands, technically called the Wildland Urban Interface. Those are places that are vulnerable to fires where basically houses are near the woods. So as more Americans live in high-risk areas, they’re in greater risk of losing their property or even their lives because of natural disasters.
Caitlin Constantine: You and I actually both have personal experience with this. You mentioned that you live on the East Coast of Florida. So just tell us a little bit more about this.
Holden Lewis: I’ve lived on the East Coast of Florida since 1999. We’ve been hit by a lot of hurricanes. I mean, there has been a few times when I’ve been able to sit on our front porch while a hurricane blew from the back of the house. So we’re sitting there in this sheltered area. My wife and I are watching entire sections of roof tiles just blow off of houses across the street and just kind of ply through the air like Frisbees.
In our house, we’ve been fortunate. We’ve had several direct heads and some damage to the house, but not a whole lot. The hurricanes do tend to blow down our wood fences. Our homeowners insurance policy has a windstorm rider, which has its own deductible. So you have a higher deductible for hurricane damage. We haven’t had major enough damage to bother with filing a claim, but I’ve spent a lot of hours rebuilding fences in very hot and muggy weather several times. So, Caitlin, you were on the West Coast of Florida, right? What was your experience?
Caitlin Constantine: So, yeah, as I mentioned in our last episode, I lived on the West Coast of Florida for about 20 years, and I left last year. When I lived there, that part of Florida doesn’t get as many direct hits as the East Coast does, but I’ve experienced my share of hurricanes as well. So you mentioned the 2004 hurricane season. We had, I think, four hurricanes crisscrossed the state within a six-week period. And that was actually when I realized that hurricanes were serious business and not just an excuse for a hurricane party. And Hurricane Jeanne, which was the last one, it actually ripped the roof off of my apartment building. And because so many other people had damage at the same time, it took a week just to get a tarp on the roof and it rained before that could happen. And so later that winter, I ended up dealing with mold all over my apartment. And that was not a fun experience.
And then I also went through Hurricane Irma in 2017, and that was probably more significant for us. It tore down my fence and it uprooted some really big trees in my neighborhood, and it left me in my neighborhood without power for a week. And this is in September, so it was getting up to be 90, 95 degrees inside my house. The linemen who rolled up to fix my power, they got the biggest, teariest, sweatiest hug from me that day. I was so thrilled to see them. And by the way, for the folks who are not from Florida who are listening, this is a common pastime for Floridians comparing notes on our hurricane stories. We all do this, right?
Holden Lewis: I have so many. I’ve heard so many.
Caitlin Constantine: Fortunately, like you, I never had to file claims or deal with insurance after any of these storms. But as many people are aware, home insurance costs really recently increased pretty significantly in Florida, and that’s in large part due to damage from frequent severe weather that happens there quite a bit. And so by the time I moved away last year, I was paying $5,000 a year for my home insurance. So with that, let’s talk a little bit about how the insurance picture has changed as the planet warms. So we all know that most people have to get insurance on their homes to get a mortgage, right? Talk us through what that’s for and what climate change has done to the calculations.
Holden Lewis: We tend to think of homeowners insurance as something that pays for home repairs if bad things happen, but it really helps to broaden that view and just to think of insurance as protecting your wealth and your financial stability and really your mental health.
So here’s how it works. Insurance pools risk. What that means is that you and other people each add to a big pool of money. And then when one of those people has damage, that person withdraws from that pool of money. The problem with disasters is that when they’re really big, whether they’re just huge geographically or very severe, that pool of money can end up being drained and then they’re still claimants who still need to draw from it. And that’s happening more and more because of the increasing frequency of climate-related disasters.
And insurance markets have suffered in high-risk states. Look at Florida. The insurance market has had challenges since Hurricane Andrew in 1992, and there’s just not a lot of large insurers who want to write policies in Florida these days. And so that means the rates have just been skyrocketing. Louisiana is grappling with damage from multiple hurricanes in 2020 and 2021. The state recently approved rate hikes of 60% for its insurer of last resort. And you look at California, they’re dealing with all those wildfires that are caused by prolonged drought, which maybe has ended with all the snow this year, but that’s going to cause its own problems. And homeowners who live near wild areas are being dropped by insurers.
Caitlin Constantine: So we’ve got these issues of availability that’s happening in these high-risk states, but we’re also seeing issues around under insurance. People maybe think that they’re covered and they discover that they’re not, or they don’t have the level of coverage that they need to rebuild after a disaster, or maybe they don’t fully understand what their policies cover. It’s not uncommon for people to think that their home insurance policy will cover flood damage when that’s typically not the case.
Holden Lewis: That’s true. The standard homeowners policies don’t cover floods, and that means that they don’t cover rising water. They do cover falling water. If your roof blows off and rain falls inside, they’ll cover that. But that’s just one type of under insurance that people have. One thing to consider is that inflation and the increases in the costs of labor and supplies, that means that a lot of homeowners are underinsured and they don’t know it because they have policy limits that maybe as costs rise, those policy limits aren’t going to cover all the damage that happened.
One other thing is that I hear people say, “If I’m hit by a disaster, I’ll just rely on government grants or federal loans.” Those are probably not going to be sufficient, and that help is going to be slow. So homeowners do have a few tools to help them understand their true risk. The current FEMA flood maps are based on historical data, and that doesn’t account for future climate change impacts and it doesn’t account for flooding that’s caused by extremely heavy rainfall, but it’s a place to start.
Another thing to keep in mind is that many states don’t require sellers to disclose the flood history to homeowners or home buyers. There’s almost no federal involvement in insurance regulation because insurance is regulated by each state. So nongovernment organizations like First Street Foundation are trying to fill in those gaps.
Caitlin Constantine: And that’s actually a good preview for the second half of this episode when we’ll be talking with the First Street Foundation about how people can better assess what their true climate risk is for housing in a given area. So Holden, for those listeners who are thinking that this all sounds a little bit overwhelming, which by the way is a completely understandable way to feel, can we give people some advice for things that they can do right now to protect themselves as much as possible?
Holden Lewis: Yes. The standard advice is to review your homeowners policy every year. In my mind, that’s boring, but don’t feel bad if you don’t do it that often. But really it helps to assess your coverage. And just get questions answered when it’s time to renew that policy. So what does that mean? Well, first, pay attention to the exclusions that lay out what the policy doesn’t cover. Flooding, for example, but also earthquakes and sinkholes. Those aren’t covered. Mold damage, that’s often not covered. Talk to the agent. Find out if you have enough coverage to replace the home and belongings if it’s destroyed in a disaster or even a fire. Ask about coverage for living expenses if you’re displaced and you have to live somewhere else for a while. And are there caps on that coverage? And look into extended or guaranteed replacement cost coverage.
And then there’s also inflation guards that you can have on your policy which adjust your coverage to account for inflation. Both of those are generally going to cost more, but if you can afford it, it might be worth the peace of mind. Just make sure you have additional coverage that you might need. We recommend looking into flood insurance even if you’re not in a place that’s designated a high-risk zone. Flood insurance costs less in medium- and low-risk areas, so it’s probably worth the investment. And then, finally, just think of your contributions to climate change and how you can reduce them. Look for opportunities to decrease your carbon footprint by reducing energy usage like when you replace windows where you add insulation. And consider installing solar panels.
Caitlin Constantine: These are all great ideas and great advice. And as the home insurance editor for NerdWallet, I definitely cannot emphasize the importance of looking into flood insurance enough. There’s one more thing that we also need to talk about, which is the key timing issue on all of this, especially when you’re buying a house. So a lot of potential home buyers, they don’t really think too much about insurance when they’re going through the process of buying a house. They’re focused on the price, they’re focused on getting the mortgage. And insurance is kind of treated as this minor thing to be just checked off the list before closing, but it’s really important to think about insurance from the start to make sure that you’re fully covered should the worst happen.
Holden Lewis: It’s a really, really good point. And it’s especially important if you’re moving from a different part of the country. Let’s say you live in the Midwest or the Northeast and you move to Florida or Texas. You might be shocked at how much it costs to insure the home. What that means is it’s really increasing your monthly house payment, and that might not be something that you’re thinking about when you’re just thinking about the property taxes and the principle and the interest. So get a ballpark estimate of your insurance costs. That way you can factor them into how much you can afford to pay for the house.
Caitlin Constantine: Right. That’s such a great point. I actually read an article about a couple that retired from New Jersey to Florida thinking that they would save money on taxes and insurance, and they were absolutely shocked to find out that wasn’t the case. They saved money on taxes, but what they saved was erased by how much more they were paying with insurance.
So thank you so, so much for joining us and for sharing this really important information with us today. We really appreciate you taking the time to join us.
Holden Lewis: Hey, I appreciate the opportunity.
Caitlin Constantine: So, Sean, I dearly hope that you as a homeowner are more than adequately insured based on what Holden just told us. I know you have a house on the Southwest Coast of Washington state.
Sean Pyles: Yeah, well, I can hear the waves from my house, and I’m embarrassed to say that I do not have flood insurance. But after your conversation with Holden, I’m going to be calling up my agent, I promise. But also, Caitlin, I’m maybe spiraling a little bit about how I’m supposed to evaluate the climate risk around my house.
Caitlin Constantine: OK. Well, I’m going to be following up to make sure that you get flood insurance. But also —
Sean Pyles: Thank you.
Caitlin Constantine: Very important. But also we’re going to get a little bit into how you can better evaluate climate risk around your house with a literal expert on risk assessment. So Matthew Eby is the founder and CEO of First Street Foundation. It’s a nonprofit research and technology company that is all about risk prediction in this time of climate change. It’s developed all these cool mapping technologies that model flood, fire and extreme heat risks all over the country. And those models are integrated into real estate sites like Redfin and Realtor.com, so consumers can look up properties they’re interested in and then make a judgment about future risk.
Matthew Eby, welcome to Smart Money. It is so good to have you with us today.
Matthew Eby: Yeah, thank you so much for having me.
Caitlin Constantine: All right. So we have just heard from my colleague Holden Lewis about all of the negative factors that are affecting housing as we find ourselves in this era of significant climate change. Can you talk with us a bit about what you’re seeing out there and whether it’s as discouraging as it seems?
Matthew Eby: Sure. Well, the top line is the benefit that we have today is that we have data. And so we’re able to understand things that we were not able to before at a property level. So kind of what you might experience or the likelihood, the probability of an event impacting a home. So whether that’s a wildfire or a flood or a wind event or something of that nature is now something that we can understand and plan for. So while these are not great things, it’s very helpful to know what’s happening because what gets measured can be managed, and then you can do things to take proactive steps to ensure that anything that does happen can be offset with, whether it’s a risk transfer product like insurance or whether it’s something that you can do smart with your home, whether it’s elevation or defensible space from fire or a number of other things that you can do to be proactive about it.
Caitlin Constantine: Yeah. A common theme that we’ve heard over the course of this podcast is the uncertainty is a challenge for a lot of people. So your point that we now have data, that seems like it could be something that could help mitigate that uncertainty a little bit.
Matthew Eby: Yeah, that’s exactly what we do at First Street Foundation, is we work with the world’s best scientists and modelers to create transparent and peer-reviewed models that we then turn into tools that you can access free of charge on Risk Factor. So if you go to riskfactor.com, you can actually type in an address and understand what the risk may be to your home today from winds or wildfires or floods or extreme heat, and then how that’ll change over the next 30 years. So understanding that uncertainty or those probabilities and that range of outcomes that could happen really then informs those next steps for you.
Caitlin Constantine: OK. And so when, say, somebody goes and they go to Risk Factor and they put in their address, I know that I’ve done this, I’ve recently bought a house and it gave me factors for flood, extreme heat and fire, how does somebody interpret that information that Risk Factor displays on the screen when they do that?
Matthew Eby: Well, the first thing that you’re going to see is a score from 1 to 10. One being minimal where we don’t identify risk within our models and then 10 being extreme. That score for the perils that you’re talking about is representative of a 30-year ownership period. So we don’t just look at what is the risk today, we say, “OK, if you’re going to own this home for 30 years, how likely is it that you’re going to be exposed to these things that would then be potentially consequential to you?” And so that score is a really indicative of what you need to dig further on.
So if you see one of the numbers kind of above 1, you’re going to want to click in and then know what might happen from those. So if we stick with this flooding example, say you had a flood factor of 5, you would click in and then you could understand what is the actual risk to the building. Is it likely that that water would make it inside the home and cause damage? And then you want to look at other things around, because we always talk about the home may be fine, it may be that 1 like we’re talking about, that great scenario where it’s a minimal risk and we don’t see it, but your neighborhood or your roads or the critical infrastructure in your community may be at risk. Those are all things we also show within the tool. So those scores are the great place to start to know where to dig deeper. But just because you see a 1 doesn’t mean you should also not take a peek around what might be at risk for your community overall and for those other pieces of social infrastructure, critical infrastructure or other residential properties around.
Caitlin Constantine: Right. So Risk Factor is like a starting point. We know that there’s been a lot of discussion about how difficult it can be for people to assess their risk, obviously. One other thing that we have heard as a suggestion is to just go and talk to the people in the neighborhood about their experiences while living there. Does that seem like a way that you can learn a little bit more about what your risk could potentially be?
Matthew Eby: Absolutely. One thing we are always telling folks is that a model is a model and it is not certainty. What you can actually do is look at your, as many models as possible. Or if we were talking about flooding still, talk to your local floodplain manager, talk to neighbors around what you may have seen in the past. The only difficult side with that is that won’t incorporate this idea of what’s going to happen in the future. So we know from carbon emissions to greenhouse gasses that things are getting warmer. We are able to quantify the differences of what will happen in those future scenarios and then understand how that’ll change certain events like flooding and wildfire and heat and hurricane winds and things of that nature. So while the history and the historical events are very important and helpful to know, it’s also important to take all of these pieces of information together to make a very informed decision versus just relying on one of them alone.
Caitlin Constantine: That makes a lot of sense. So we’ve just talked a little bit about where future homeowners should be thinking about when they’re shopping for a house during this time of climate change and uncertainty. Can we also talk a little bit about what you buy? For instance, if you’re buying an older house or if your home has new construction, can you share a little bit about that?
Matthew Eby: Sure. So when you are looking at your property, each one of these risks are going to have different vulnerabilities to that structure. So one thing, as you just mentioned when it was built, means the building code standards were going to be either today’s because it’s a new build or one of the past building code standards that would have different rules about how it must be constructed. And so you’re going to want to look at the age, which is then driver of the building code standard, but then also sync with things like wildfire. For a lot of the homes that are on the West Coast, what are we seeing for what’s called defensible space? So is there a bunch of shrubs around the property or trees around the property? Because that’s really the major driver of what sets so many homes to actually combust, is because fires get so close under those trees and shrubs. So there’s a mixture of not just the structure itself, but also what’s around structure.
Caitlin Constantine: As somebody who just bought a home that’s near a lot of trees, I have been paying a lot of attention to that buffer zone around my home where all the vegetation is because I know that I live in the [Wildland] Urban Interface. So let’s take a bigger picture view of this and talk about what we as housing consumers, do you think that we are actually paying enough attention to climate risk when we’re looking at and thinking about where to live?
Matthew Eby: Unfortunately, it’s not something that is part of every transaction. So there are things like the National Flood Insurance Program and the FEMA flood zones, which give you an understanding of risk from flooding as FEMA sees that. But that is a stationary view of risk. It doesn’t include how this will change in the future. It’s also dependent on when those maps are made and whether they’re even available for your area. And they miss things, like they don’t include basics like precipitation flooding, so they don’t have zones associated with just rainfall flooding, which actually causes so much damage to so many homes each year.
So there’s one issue there with kind of the government standards on flooding and how it doesn’t do that. Outside of that, there’s just not data for other things, like there’s not a data for wildfires at a property level. There’s things from the Forest Service where you can go to wildfirerisk.org and get an idea of your community risk, but it doesn’t tell you about your individual property. So those are the kind of the negatives.
The positive is that data like ours is now being integrated into Realtor.com, Redfin, these types of real estate sites or brokerages like Compass that are where people are looking for homes. So they actually, “While I’m seeing the listing, I can understand the level of risk and then make an informed decision based off of it.” So while we’re making great strides, it’s just not all the way there yet.
Caitlin Constantine: I’d like to shift gears really quick to talk about people who are already homeowners, especially people who already are in high-risk areas, like places that are already seeing rising sea levels or people that are in the [Wildland] Urban Interface where fire risk is more severe. How do you talk to people about managing their risk when they already live in these places?
Matthew Eby: Yeah, I mean, the first thing you can do is just know what your risk is. Talk to your local floodplain manager, talk to your local fire department to understand what might be at risk, what might not be. And then with that knowledge, you can start to put together a plan. Is it just your individual home that’s at risk and you need to think about adaptation, mechanisms, how do you harden your home so that it isn’t as exposed to these risks if they were to happen? Or, once you see your individual home risk, how do you collectively as a community start thinking about it? But it is a collective action that if everyone is willing to, together, do the best that they can to protect the community, you’re going to be in a much better spot than you just trying to do it as an individual.
Caitlin Constantine: So if there was just one lesson that you could have people learn and understand about the risks of owning a home in this time when the climate is changing, what would that one lesson be?
Matthew Eby: I think the thing that people get wrong all the time is probabilities, because probabilities are really hard. And so when you think of a 1 in 100 flooding event, you can’t think of it as “This will happen once every hundred years.” This is a 1% risk today. And then next year you have another 1% risk and so on and so forth. So if you think of that accumulative probability without anything to do with climate change yet, means that 1% event has a 26% chance of happening over a 30-year mortgage. So if you’re planning on living in your home for 30 years and you have a 1% risk, it’s a 1 in 4 chance that horrific event is going to happen to your property. So you have to think of it as, that is a significant amount of risk and you really need to plan like it’s going to happen.
Now, you add in climate to that and it’s 1% today and it’s growing over time. Those probabilities just compound. And so really what you need to be thinking about is cumulative risk with climate change. And so what are my actual odds of this if you’re a probability person, but really just thinking about homeownership as a length of time, not like an insurance policy where you look at risk on a year-by-year basis. Think of it as the homeowner as the period that you’re going to live in it or your whole period of it’s an investment.
Caitlin Constantine: I am really glad that you made that point because I’m not going to pretend like I’m great at math, but I know that this is an ongoing challenge for a lot of people because as you said, they hear 1 in 100, one flood out of every 100 years, and then there’s a flood and they’re like, “Cool, we’re good for the next 99 years.” And as you have —
Matthew Eby: “We’re good to go.”
Caitlin Constantine: Yeah. And as you’ve just stated, that’s actually not how probability works at all.
Matthew Eby: Yeah, exactly. Exactly. Yeah, the unfortunate part with flooding is that something like that happens, literally it could happen the next day. It’s just the lottery. You bought a lottery ticket and there’s a 1 in 100 chance of winning. You won. You buy a ticket the next day. You could win and get the exact same thing with flooding. But whereas something like wildfire is a little different because it needs fuel to burn. So once it burns, then everything changes. But that’s also so much more destructive than flooding. So each peril is different, but those probabilities are just so important to understand.
Caitlin Constantine: Matthew, this has been really great. Thank you so much for joining us today.
Matthew Eby: Oh, thanks so much for having me.
Sean Pyles: OK, Caitlin, the first thing I’m doing when I wrap up my work for the day is I’m going to put my property into Risk Factor, and then I’m going to study my home insurance policy.
Caitlin Constantine: That sounds like a fabulous evening. I hope that you’re going to enjoy an adult beverage along with that scintillating plan.
Sean Pyles: Yeah, maybe two.
Caitlin Constantine: I’m kidding, sort of. That’s actually a great plan and something that everyone should do regardless of whether you have an adult beverage with you or not.
Sean Pyles: Yes. So listeners, please put that on your to-do list. You will thank yourself later. But, Caitlin, can you tell us what’s coming up in episode three of the series?
Caitlin Constantine: Well, Sean, a lot of people want to know concrete steps they can take to help fight climate change. And one thing they may have heard about is what’s called ethical investing or ethical banking or ESG or sustainable banking or socially responsible investing.
Sean Pyles: OK. OK, Caitlin, I’m about to call the jargon police. These terms seem slapped together by a marketing team.
Caitlin Constantine: Oh, I agree with that. It is a lot of word salad, and we’re going to actually cut through that salad.
Sean Pyles: OK. I’m going to get a good fork and a good knife and maybe some tongs.
Caitlin Constantine: Yeah. And maybe a nice balsamic vinaigrette to go on top of it when you’re done.
Sean Pyles: Yes. Yes. All right.
Caitlin Constantine: So yes, but we’re hoping that this will give folks better tools as they’re making their decisions about how they can save the planet.
Spencer Tierney: We have to be honest with ourselves that our individual impact isn’t going to change the world on its own. It’s really going to be a group effort to create systemic solutions to climate change. And the more people who choose a bank based on its sustainable focus, the more of a hold sustainability will have in the banking industry.
Caitlin Constantine: For now, that’s all we have for this episode. So do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected]. Also visit nerdwallet.com/podcast for more information on this episode. And remember to follow, rate, and review us wherever you’re getting this podcast.
Sean Pyles: This episode was produced by Tess Vigeland and Caitlin Constantine. I helped with editing. Sarah Schlichter helped with fact checking. Kaely Monahan mixed our audio. And a big thank you to the folks on the NerdWallet copy desk for all their help.
Caitlin Constantine: And here’s our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and it may not apply to your specific circumstances.
Sean Pyles: And with that said, until next time, turn to the Nerds.
On April 1st, I got an unpleasant surprise, and it wasn’t an April Fools joke or gag. I found out that one of our renters didn’t have enough money to pay all of his rent.
Since nothing like this has ever happened before, I was definitely caught off guard. Still, it wasn’t the end of the world. Since I pay all of our mortgages ahead of schedule, waiting a few weeks for payment wasn’t going to affect my bottom line. And after talking with my tenant, I agreed to accept partial rent on the 1st and the rest of the money on the 17th of April.
I usually wouldn’t make such a big exception. However, this particular tenant is a responsible man who treats our property with incredible respect and care, even going as far as fertilizing and edging the lawn. Since he and his wife have lived in my property for four years and never paid late, I was more than willing to break the rules just this once without giving them any grief. No big deal.
But once our tenant left, my usually frugal husband, Greg, had an idea that shocked me. “We should just let him mow our grass this summer and forget about the $400 he owes.” Our renter did work in landscaping, after all, and he had expressed interest in mowing our yard in the past. However, I wasn’t fully sold on the idea.
We aren’t saving extremists by any means, but we’ve always been the kind of people who do everything ourselves. We clean our own house, do our own yard work, and manage our own rental properties. Greg does our taxes and accounting and I even color my own hair. We rarely farm out any of our responsibilities, and we have saved a lot of money by choosing to be self-sufficient. In fact, that is basically how we dug ourselves out of debt. Some of our first steps toward a healthier financial situation included cutting out unnecessary services and becoming more self-reliant. Since adopting a frugal lifestyle is what got us where we are today, I was extremely hesitant to hire out any of our responsibilities. It seemed like a giant failure on our part and I felt like we were taking a step in the wrong direction.
An unsustainable future
Still, trying to do everything ourselves can sometimes take its toll. A few weeks ago, Kristin Wong wrote a post about being a workaholic, and I could definitely relate. Greg and I both work full-time and have various side hustles and freelance writing gigs. We also have two small children that require a lot of energy and care. For the past year, we have easily worked 55-65 hours or more per week, in addition to doing all of our household chores and being parents. It’s been great for our pocketbook, but it has been extremely hard to maintain a high level of productivity at work and keep everything else running smoothly.
Occasionally, something has had to give. And to the likely disdain of our neighbors, that something has usually been our yard. Last year, we were unable to find time to mow on several occasions, and the result was that our home stuck out terribly on our quiet street of beautifully manicured lawns. Whenever that happened, we were stressed out and overwhelmed until we finally found time to get the job done.
Is a reasonable amount of lifestyle inflation okay?
Considering the circumstances, paying someone to mow our grass started to sound amazing. But, would that really be a responsible decision? Or would we just be giving in to the chief sin of frugality: lifestyle inflation? My husband assured me that this arrangement would work out great for everyone involved. Our tenant wouldn’t owe us the rest of his rent for the month, and in turn, we would have an entire warm season free from yard work. He reasoned that we just cannot keep working so hard without burning out. And, as usual, he had a point.
“It’s time to stop trying to do everything ourselves. We need to find a way to have more free time or we will eventually go crazy.”
He spoke the truth. Aside from vacation, we haven’t had much free time in the past few years. We had been working so hard, had paid off all of our debts, and were able to secure various streams of income. However, we were running short on time to get anything else done. And while working hard wasn’t a problem in itself, the hours we were putting in meant that our other responsibilities were often neglected. Nevertheless, I didn’t want to get carried away by our new penchant for lifestyle inflation. It was important to determine what we really wanted to hire someone to do, and what we would continue to do ourselves.
My husband made another thoughtful suggestion, “let’s just do the math and see if it really makes sense.” So we did. Our tenant currently owed us $400, and we figured that we probably mowed our grass fifteen times last year. That works out to about $25 per mow. And since it typically takes either of us about two hours to get our yard mowed, we would only be paying $12.50 per hour to buy our time back. Looking at the numbers from that perspective made me feel completely different. Was it worth it to pay someone $12.50 an hour to complete a task that we could rarely find time to do? Without a doubt.
We decided to call our tenant and see if he would agree to our suggested arrangement. He was thrilled to have the opportunity, and I was relieved that we would have summer free of yard work after all. And even though my husband suggested that we also hire someone to clean our house, I’m still mulling that suggestion over. I’m just not willing to make several changes at once, and I don’t want to end up paying someone to do everything.
A healthy dose of lifestyle inflation
Even though I was feeling like a failure for not being able to do everything, I am learning to accept that fact that it may make sense to occasionally hire help. And the truth is, I used to clean houses in my early twenties, and the people I cleaned for weren’t lazy at all. They were busy. They knew that their time had become worth more than what they were paying me to clean their home, and I now realize that they were wise to delegate those responsibilities.
In the end, we decided to do what felt right. And since we are finally debt free and starting to earn more, it was time to start reevaluating the way we have been living. Time is our most precious asset, and we needed to spend more time living instead of always cramming in as much productivity as possible. It’s become against my nature to pay for services, but I’m coming around, slowly but surely. And this summer, when my kids are playing in the dirt and I’m enjoying the last hours of the evening, I’ll probably wonder if the money was worth it. I can only hope that the answer is yes.
Do you do everything yourself? Or do you hire out certain responsibilities? What factors do you take into consideration when making those decisions?
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Frugal green living is important for everyone because environmental issues affect all of us, not just the people who can afford to be eco-conscious.
Plus the concept of frugal green means you are saving money! And that is always helpful.
This is why I created this blog, to help people save money, find financial freedom, and have choices in life.
Reducing your carbon footprint is one of the greatest gifts you can give to yourself and the planet.
But how do you save money while also making a difference? It’s possible!
This is why choosing to be frugal green is so important!
These are all frugal ways that I have personally done or heard of other people doing as well. They are tried-and-true methods of living a more frugal life, and I hope that you will find them helpful. Plus help the environment at the same time.
This is a win-win situation.
Have you ever wondered how to be environmentally friendly?
Do you want to save money and the environment at the same time?
This article has 91+ frugal green living tips that will help! Let me know which ones are your favorites!
How to save money and be frugal green?
There are many ways to be frugal green and save money while helping the environment.
Plus in the long run living green costs less.
We will cover ideas for your kitchen, car, shopping and so much more. There are many other ways to be frugal green, so find what works best for you and make a difference!
These are ways to live more sustainably while saving money.
Importance of Sustainability and the Environment
You can save money and help the environment without making any major changes to your lifestyle.
Some easy ways to do this include, but are not limited to, changing your habits at home, buying used instead of new, and being more conscious about how you use energy.
Every day you can make the decision to choose to be a thrifty person.
Top 10 Best Frugal Green Living Tips
In order to save money and be more environmentally friendly, try some of these tips:
1. Reduce your use of plastics. This means bringing your own bags to the grocery store, refusing straws when you order drinks, and not using disposable utensils or plates.
2. Make Recycling a Priority. Recycling is important, and everyone should do their part to make it a part of their everyday routine. It’s not just for plastics and paper- there are many different things that can be recycled. By taking small steps like bringing a reusable coffee mug, we can all make a big difference in the long run.
3. Ride a bike or walk instead of driving. Not only is this better for the environment, but it’s also a great way to get some exercise.
4. Do the “green thing” and buy things secondhand! When you’re considering your lifestyle choices, buying things secondhand is a great way to do the “green thing.” You can save money and help reduce the amount of waste that goes into landfills.
5. Only buy what you need. Many times we buy things out of convenience or wants. Truly evaluate whether the purchase is necessary or if you can save money by buying used.
6. Compost as much as possible. Not only does this help reduce waste, but it also helps create nutrient-rich soil for plants.
7. Consider your carbon footprint. Americans use a tremendous amount of resources and impact the planet in many ways. We consume a lot of energy, materials, and water. Our lifestyles have a big environmental impact. There are many ways to be frugal and environmentally conscious, including recycling and reducing food waste.
8. Cut Out Paper and Plastic Waste. One way to be more frugal and green is to reduce the amount of paper and plastic waste you produce. Technology has greatly improved in many ways to cut down on plastic and paper consumption, so take advantage.
9. Think Before You Throw Away and Buy New. We are way too quick to toss things and replace them without even thinking. Next time before you throw it into the landfill, think about how you can reuse, repurpose, or give away the item.
10. Upcycle. The concept of upcycling has gained popularity in the past years. It is a simple way of taking something ugly and worn down, putting some TLC into it, and making it into something beautiful.
Related Reading: Top 10 Influential Frugal Living Tips with a Big Impact
Being frugal and being environmentally conscious may not always go hand in hand.
In some cases, you may have to make a choice between buying an eco-friendly item that is more expensive or sticking with a cheaper, non-sustainable option.
However, many of the aims of frugal families link to eco-friendly living.
Below are simple sustainable products to consider buying instead of their wasteful counterpart.
Reusable food bags are a great way to reduce your environmental impact while also saving money.
There are a variety of different types of food grade eco-friendly bags on the market today. They are made of safe, eco-friendly materials that will not harm the environment and they are lead-free, chloride-free, and BPA free.
Bamboo straws are a great eco-friendly alternative to plastic straws.
They are compostable, meaning they will never pollute the environment or harm animals. Bamboo straws are odorless and tasteless, so you can use them with any drink. Reusable bamboo straws make a great addition to your everyday kitchen supplies.
These dish cloths are also super absorbent and work better than microfiber cloths and paper towels for cleaning.
They are made from cellulose, which is a soft material that is gentle on your hands. They can be used for a variety of tasks, such as dishwashing, wiping down counters, and polishing furniture. And they are durable enough to be reused multiple times.
A reusable K-cup is a great way to reduce your environmental impact while enjoying your favorite cup of joe.
Works perfectly in our house! Not only do they help you save money in the long run, but they also allow you to customize your coffee experience like never before. Plus, using a reusable k-cup is an easy way to reduce waste and help preserve our planet.
Frugal Green in the Kitchen & Table
There are a number of ways to save money and be frugal green in your kitchen.
Use a Reusable Coffee Mug. So simple and easy to do. Pick your favorite up here.
Skip plastic straws. This is a simple thing to do for the environment. Buy reusable straws. And don’t forget the cleaning brush (hint… the cleaning brush will save you from throwing away your reusable straws.)
Skip the Paper Plates and Plastic Utensils. You will be shocked to see the waste this creates. Invest in quality dishes you like and don’t be afraid to wash them up.
Invest in a Water Filter. If you’re looking for ways to improve your diet and save money, consider investing in a water filter. We upgraded to an under-the-sink mount water filter and it was the BEST choice ever! This is the exact one we bought.
Cook at Home. Making your own meals can save you a lot of money in the long run. You’ll be surprised at how much money you can save by cooking simple meals yourself.
Grow a Kitchen Garden. One way to reduce your food costs is to grow some of your own fruits and vegetables. You can start with a kitchen garden, which is a small plot of land near your house where you can plant fruits, vegetables, and herbs. if you don’t have space, check out these Aerogardens.
Stop Using Plastic Wrap. To reduce your reliance on plastic wrap is to invest in some beeswax food wraps. These work just as well as plastic wrap, but because they’re made of natural materials, you can reuse them over and over again!
Air dry dishes. This is because air-drying dishes use less energy than running a dishwasher and takes up less time.
Stick With Instant Pot. When you’re cooking, try to use a microwave or pressure cooker instead of your oven. Ovens produce a lot of heat and use up a lot of energy, so using these other appliances will help conserve resources. This is the Instant Pot/Air Fryer Combo I love (and use ALL.THE.TIME)!
Frugal Green Cooking & Menu Plan
This may not seem as environmentally conscious as other areas, however, it will help your wallet more.
Buy produce at the local market. Fruits and vegetables tend to be cheaper at the market than they are at the grocery store, so this is a great way to save some cash while also doing your part for the environment. Plus you save on the costs of trucking in the produce and support local.
Join a CSA. These community-supported agricultures have become popular ways for consumers to buy local and seasonal food directly from the farm. You normally have a dollar amount buy-in or a certain number of hours worked for food.
Enjoy Organic Foods. Organic foods may be worth the extra cost – organic food has a higher nutritional value than conventional food, plus it’s better for the environment because it doesn’t require pesticides or chemical fertilizers.
Go Meatless. Americans, on average, eat twice the recommended amount of meat. Meat production is one of the leading causes of greenhouse gas emissions and climate change. Consider your carbon footprint when making dietary decisions.
Shop Grocery Weekly Ads. Start by looking out for food sales at the grocery store. This can help you save money while also being more mindful of the environmental impact your food choices have.
Meal Plan. One great way to save money on groceries is to plan your meals ahead of time. This allows you to be more strategic in your shopping and can help you avoid buying items that you don’t need.
Use Leftovers. When you’re cooking a meal, always cook a little more than you need. This way, you’ll have leftovers that can be used to make another meal or stored in a glass jar for later use.
Pantry Challenge Time! One way to save money on your groceries is to consider doing a pantry cleanse. This means eating all the foods in your pantry that are sitting there. Then, only buy groceries that you know you’ll use. This can help you avoid overspending and wasting food.
Skip Pre-Made or Boxed Mixes. Making your own is a more affordable option, as pre-made or boxed mixes can be expensive. There are many recipes online that are healthy and affordable, and by planning ahead you can save time and money.
Shop the Perimeter of the Grocery Store. A lot of people want to save money and be more environmentally friendly, but don’t know where to start. One way to do both is to try to stick to the perimeter of the grocery store. This means avoiding the center aisles, where most processed foods and extra packaging are found.
Buy Generic Brands. Generic brands are less expensive than their name-brand counterparts. This is because generic brands do not have the same marketing and advertising costs as name-brand products. Many times the quality is the same or better!
Key Frugal Green Ideas While Shopping
These are environmentally friendly ways to improve your shopping habits. Many people may call this frugal minimalism.
Donate First. It’s easy to just dispose of something when it’s no longer needed, but sometimes that thing could be reused or recycled. For example, if you have an old TV that isn’t being used, try selling it or donating it before throwing it away. There are a lot of people who might need your old TV, and you can get some money for it if you sell it.
Buy Refurbished. On the other hand, if you’re in the market for a new TV, think about buying one that is refurbished instead of buying a brand-new one. Refurbished electronics often come with the same warranty as new ones and cost way less than buying a brand-new model.
Try Fixing First. Just because something is broken doesn’t mean you have to throw it away! Many times, things can be fixed very easily and cheaply. If your electronic device is leaking toxic chemicals, however, you should definitely not try to fix it yourself–take it to a professional recycler instead.
Reuse your own grocery bags. This will save both money and the environment, as disposable grocery bags often end up in landfills. Also, many stores are now charging for grocery bags, so save a few bucks at the store.
Do not buy new books. You can borrow books from the library or from friends, or you can buy them used. Buying new books wastes resources, and it’s often cheaper to buy them used.
Use the Library. The library has a wealth of books, movies, and music that you can borrow for free. Plus you can find access to tons of digital resources as well.
Shop Second-Hand Stores for your needs. These are great places to find clothes, furniture, and other household items at a fraction of the price.
Stop buying the paper version of the newspaper. Instead, get the daily news online for free. Not only will you save a few bucks each month, but you’ll also help reduce deforestation.
Shop at Sustainable Businesses. Thankfully, many companies focus on being sustainable businesses by making changes from production, to packing to shipping. As a whole, the industry could do better to create less waste. One sustainable company is the Everyone Store.
Think Twice on Gifts. Really consider what someone would want for a gift. Too many times we opt for quick and cheap gifts that are materialistic in nature and never be used. So, consider some of these money gift ideas instead.
Frugal Green Cleaning Products that Are Eco Friendly
You may not be environmentally aware of the hazards of using most cleaning products. In fact, you should check your normal cleaning products with EWG’s database and their standards.
DIY Baking Soda & Vinegar. Using green cleaning products is usually more expensive than traditional ones. Baking soda and vinegar are easy-to-find, cost-effective alternatives to environmentally unfriendly cleaners.
Use Microfiber Cloths. Personally, this is my favorite way to cut the expansive (and not-good-for-you) cleaning products. These microfiber cloths are just as effective at cleaning and will save you money in the long run.
Skip the Disposable Rags. Use up-cycled rags from old clothes to pick up spills.
Stop Using Air Fresheners. Reduce or eliminate the use of air fresheners, which release harmful chemicals into the air. Plus they are super costly!
Frugal Green & Energy Use in the Laundry Room
Use Detergent Powder. Washing your clothes in a washing powder uses less water than liquid tabs, which come in more plastic packaging. Also, the powder is a much better environmental solution and better for your body. This is the detergent powder we use and love (and those I recommended it to love it as well)!
Sniff Test. Implement the sniff test and only wash clothes when they fail the sniff test. Beware of this recommendation with teenagers!
Line Dry Clothes. Additionally, line drying clothes throughout the year can save a ton on your energy bill! Plus your clothes do not wear as quickly.
Watch Your Hot, Wash in Cold. One easy way to save money on your household bills is to reduce the amount of hot water you use. Heating water takes up a large percentage of the energy used in households, so by washing your clothes in cold water, you can cut down on your energy usage significantly.
Frugal Green in the Bathroom & Morning Routine
Use Less Shampoo or Soap. In order to save money on your grocery bill, you can use less shampoo than is recommended. If everyone did this, it would result in significant monetary and plastic savings.
Turn the water off while brushing your teeth. It is important to turn the tap off while brushing teeth in order to conserve water. Many people forget to do this, and as a result, millions of gallons of water are wasted every year.
If it’s yellow, let it mellow. If the toilet water is yellow, it’s ok to let it mellow. You don’t have to flush to turn it off every time. Thanks to auto-flush toilets in most places this is very common for people to forget to flush at home.
Take Cooler Showers. This may not be everyone’s favorite. But take a cool shower rather than a piping hot shower. Most of the energy used is the hot water heater warming up the water.
Use Every Last Drop! There are a few ways to get the most out of your products and conserve them- one way is to leave bottles upside down for a couple of hours after you’ve used them so that you can get the last bit of product out. You can also roll up toothpaste tubes to get the remaining paste out. Here is a great product to help you squeeze every expensive ounce out.
Related Reading: Billionaire Morning Routine: How To Achieve Success In Life
Green Lot with Frugal Green Landscaping
Xeroscape Your Lawn. Lawns are often seen as a status symbol, but they’re actually quite expensive and environmentally damaging. They require large amounts of water, fertilizer, and pesticides to maintain, which can leach into the groundwater and pollute the environment.
Change Mowing Schedule. Additionally, lawn mowing emits greenhouse gases that contribute to climate change.
Water Less Often. While this sounds great in theory, you may not be able to fully switch to xeriscaping your yard. If you can’t switch, then check out this Rachio to lessen your dependence on water.
Frugal Green Home Ownership
There are many ways to save money and be more environmentally conscious at the same time when owning a home.
Your home is probably one of your biggest expenses, so it’s important to take measures to conserve energy and save money. Plus there are many ways to reduce the amount of energy your home consumes!
Home Improvement Math. When considering whether or not to make an improvement to your home in order to reduce your carbon footprint, always do the math to see if the improvement will actually pay for itself. Sometimes it will and sometimes it won’t so be sure to weigh all of the options before making a decision.
Downsize Your Home. If you live in a large house, consider moving into a smaller one. This will help you save on your energy bill and make your home more efficient.
Install low-flow fixtures. One way is to install low-flow fixtures, such as showerheads and faucets. This will reduce your energy use and, in turn, your monthly bills. You can also save water by taking shorter showers.
Hang UV Blocking Curtains. By stopping the sun from heating up your house with curtains during the day, you can save on cooling costs in the summer. Using UV blocking curtains is something we did and notice a significant difference in the summer and winter.
Run Appliances with Full Loads Only. Wait until you have a full load of dishes or laundry before running the dishwasher or washing machine. You would be surprised at the amount of energy and water it takes to run those appliances.
Be Reasonable with Air Conditioning Temperature. In the summer, don’t crank up the air conditioning to save on your energy bill. You can also set your thermostat a couple of degrees higher in the summer to save money. Also, you may want to start cooling your house earlier in the day to prevent your AC unit from working overtime and consuming more energy.
Program Your Winter Heating Temperature. In the UK, A/C is not as common as it is in other countries. Central heating is used more often and is set to a lower room temperature for the summer and a higher room temperature for the winter. This is because people want to save on their energy bills.
Open Windows to Cool House. When the weather is nice, open your windows to allow for natural cooling. This is a simple and cheap way to cool your house. Especially after a nice cool thunderstorm.
Buy Energy Efficient Appliances. Energy-efficient models might be more expensive in the short term, but they will save you money in the long run and help reduce your environmental impact. However, these products should only be bought when the older model is worn out–don’t replace something just because it’s energy-efficient!
Replace Windows. On the one hand, it’s a great idea to replace your windows with more energy-efficient models if you’re staying in your home for many years. However, if you plan on moving within a few years, it might not be worth the investment. You’ll need to weigh the cost of the windows against how much money you’ll save on your monthly energy bill.
Get a programmable thermostat. Programmable thermostats are a great way to save money on your energy bill. You can set them to turn off or down when you’re not at home, or during times of the day when you don’t need as much heating or cooling.
Look for Energy Leakage. The typical older home has enough energy leakage that it’s the equivalent of leaving your front door open all year long. You can combat this by installing weather stripping and caulking around doors and windows and adding insulation to your attic. Most utility companies offer an energy audit.
Weatherize your Home. Weatherizing your home is a great way to improve energy efficiency and save money on your energy bills. There are many things you can do this and varies on the area of the world you live in.
Sustainable Frugal Green Transportation
Ditch the Car Completely. One of the biggest expenses for many people is their car. Whether you’re paying for car payments, insurance, gas, or maintenance, it can be a lot of money. You can eliminate this expense by ditching the keys and taking public transportation. Not only will you save money on your monthly expenses, but you’ll also help the environment!
Buy Hybrid Cars. Hybrids cars are expensive but they could help you save money on fuel in the long run – hybrids tend to have lower emissions than conventional cars. So, it might be time to say bye to that beater car.
Drive Less and Play Your Route. Driving less is the biggest way to reduce fuel-guzzling trips. Take it a step further with UPS research on their strategic delivery methods and focus on making only right-hand turns.
Carpool Whenever Possible. carpooling is a much more green choice than driving alone.
Look Into Car Sharing. When you only need a car occasionally, or for short trips, it might be more convenient and affordable to use a car-sharing service. Car-sharing services offer the opportunity to have access to wheels when you need them, and they’re flexible and convenient for short trips.
Invest in Electric Scooter. This mode of transportation is the uber-popular. You don’t need cash for gas, money for registration fees, and completely reliable to get around quickly. Check out the best electric scooters on the market.
Ride a Bike. A commuter bike is much cheaper than a car. Plus you get the added benefits of exercise and no carbon waste. Or upgrade to an E-bike.
Telecommute. If you can do your work remotely, then telecommute more often than not. This will save on transportation costs as well as pollution.
Walk More Often. Plan your day around being able to walk places that take under 30 minutes to get there. Then, it is better to walk than drive. Plus you can hit your 10000 steps quicker. It is a triple for the win – health benefits, free exercise, and fresh air!
Don’t Run Your Engine Unnecessarily. Leaving your engine running unnecessarily while stationary can waste fuel and cause environmental damage. Make sure to turn your engine off when you’re not moving to save money and help the planet!
Drive More Efficient. When it comes to saving fuel, one of the best ways is to drive more slowly and efficiently. This will help you save petrol or diesel and reduce your carbon footprint. For example, slowly put your foot on the accelerate to maintain a speed.
Frugal Green Budgeting Per Month
Choose To Save Rather Than Spend. Every tie you actively choose to save your money rather than spend it. You help the environmental impact. We have plenty of popular money saving challenges to help you save more money today.
Pay Bills Online. When you pay bills online, you can save a lot of time, space, and money. You can also save paper by paying your bills online–instead of receiving paper statements in the mail, you can access them online.
Find Free Things to Do. This one is a win-win for frugality environmentalism. Focus on finding activities from this list of things to do with no money. Many of them are already frugal green wins.
Opt for Paperless. And finally, if you pay your bills online, you may automatically receive discounts on some of your monthly bills! Many companies now charge a $2-5 paper statement to be mailed.
Focus on Financial Independence. This may seem like a crazy idea, but it is true. The more you save, the faster you reach financial independence. In fact, this is with the Frugalwoods decided to be frugal in the first place.
Follow Simple Frugal Living Green Ideas – Way to Go Green
Reduce, reuse, recycle. This old mantra is more important than ever in today’s world. By recycling everything you can, you can help conserve resources and keep waste out of landfills.
Your Mindset is Everything. Just like with anything, if you decide to commit yourselves to become environmentally aware, then you are likely to succeed. You don’t have to become extremely frugal overnight. You just have to remember that mindset is everything in this process.
Turn off electronics when not in use. This includes televisions, computers, and other appliances. By turning them off, you’re conserving energy (and saving money). Plus some older appliances might be fire hazards if left plugged in.
Stop Junk Mail. One way to reduce the amount of junk mail you receive is to go through your postal mail and ask to be removed from lists you’re not interested in. This can be done by contacting the Direct Marketing Association (DMA) or specific companies that send you unsolicited mail.
Grab a Sweatershirt or Blanket when Cold. Instead of automatically adjusting the programmable thermostat higher, you can also save by wearing a sweater or using a blanket. Maybe turn on the fireplace before putting the heating on.
Invest in Renewable Energy. In today’s world, it is more important than ever to invest in renewable energy. There are many reasons for this:
First and foremost, using renewable energy helps to reduce our dependence on fossil fuels, which are finite and contribute to climate change.
Renewable energy also creates jobs and supports local businesses.
And finally, investing in renewables reduces our greenhouse gas emissions, helping to fight climate change.
In the long run, renewable energy can save you money and reduce emissions by providing power more reliably, often more cheaply than a traditional power source.
Are You Ready Live Life Frugal Green?
Living a more frugal lifestyle is good for the environment because it costs less.
It doesn’t take much to make small changes in your life that will have a big impact on the planet. For example, consume less and you’ll be doing the most earth-friendly thing you can do.
There are dozens of ways to save money and be more environmentally conscious which we covered in this post.
Being frugal and being green often go hand in hand.
However, most people lose steam after just a couple of weeks. So, do not attempt to do each frugal green living habit.
Pick your top 3 with the biggest impact.
Add one another 1-3 frugal living tips every month or so.
Over time, you will be surprised to see how easy it is to live frugal green, while also helping you to save money while also protecting the environment.
You can be the frugal green girl or gal with a few of these simple habits. Or choose to follow a frugal blog or frugal forum.
Know someone else that needs this, too? Then, please share!!