Dumb Financial Decisions: Buying A Home That Is Too Big

Dumb Financial DecisionsEarlier this year, I wrote about our Smart Financial Decision to pay off our mortgage.

Today I’m once again writing about our home, but this time, we’ll be revisiting a Dumb Financial Decision.

Quite simply, when we bought our home six years ago, we purchased a larger house than we really needed.

And the financial ramifications of that decision continue to negatively impact our personal finances every day.Just to be clear, we don’t own a sprawling mansion. We own a four bedroom home with a two car garage in a nice neighborhood with a good school system.

But in retrospect, it’s more home than we really need.

While having four bedrooms is nice, it’s still excessive given that Mrs. ROMT and I share a room and both of our children have their own bedrooms.

That leaves us with an extra bedroom that serves only as a home office/playroom when we don’t have visitors, which is 95% of the time. Moreover, we also have a finished playroom in our basement that has a pull out sofa bed that can be used for visitors. We do have visitors in both rooms a few times a year, but the vast majority of the time we have two spare rooms that get relatively little use. That’s a lot of extra space we don’t really need.

But at least that space is usable when we do want to use it. Something I didn’t like about our house from the first time we looked at it is even worse.

After walking through the front door, our entryway is an open two story foyer. It serves absolutely no function, as far as I can tell, except perhaps trying to impress visitors who care about things like two story foyers a lot more than we do. Every time I see this open space, I think about what a waste it is.

I can’t complain about our dining room like some people do, since we do eat dinner in it almost every evening. But our living room gets precious little use relative to the family room, the playroom in the basement, and even the fourth bedroom/home office.

Our quality of life would not be appreciably worse if we had one less bedroom, no living room, and a one story foyer. The kids could share a bedroom when we had visitors, and we could have our home office in a corner of the master bedroom or down in the basement.

The problem with all of this unnecessary and wasted space is that we didn’t just have to pay for it when we purchased the house. We’re still paying for lots of extra square footage we don’t need or can’t use every day of the year in multitude of different ways.

Ongoing costs associated with this extra space includes:

Higher Property Taxes

Property taxes in our town are based on the assessed value of our home. The assessed value of our house is driven by several factors, including its square footage. If we had purchased a similar house with only three bedrooms or an unfinished playroom in the basement, our property tax bill would be lower than it is today – for every year as long as we owned the house!

Larger Utility Bills

The extra space in our house needs to be heated in the winter and cooled in the summer. We can shut some doors and close some heating registers to try to minimize the impact, but in reality we don’t do this most of the time, since it’s not like we go weeks on end without using these rooms. Most galling to me is the big empty space in the two story foyer that we have no choice but to heat and cool all year long.

Higher Insurance Premiums

More square footage generally means a higher home value, everything else being equal. And a higher home value generally means higher annual insurance premiums. In this article on homeinsurance.org, the square footage of your home is the first item listed when discussing facets of your home that can impact its value and, ultimately, your insurance rates.

Higher Maintenance Costs

A larger house with more rooms and more square footage means more doors and windows that can break. More walls and ceilings to paint. More space to vacuum and dust. More carpets or hardwood floors to wear out. More siding to wash and shingles to replace. The list goes on and on!

More Money Spent On Home Furnishings

If we have a room in our house, we’re not just going to leave it empty. Our extra space needs beds, chairs, tables, and couches. Televisions, clocks, and lamps. Pictures, window treatments, and area rugs. All of these items cost us money we most likely wouldn’t have spent if we didn’t have to furnish space that we don’t really need.

What’s the actual financial impact of having all of this extra space?

It’s impossible to calculate for sure, and a bit of a theoretical exercise, since we can’t just chop off our guest bedroom or move it to fill in part of the empty space in our two story foyer.

But if our house was 10% smaller and had a more efficient floorplan,  I think we could easily save at least 5% a year on our property taxes, utility bills, insurance, and maintenance expenses. That certainly adds up to hundreds of dollars a year, in addition to the thousands of dollars we have spent on home furnishings for space we don’t really need.

We are very happy in our home, especially now that we have paid off our mortgage and added a home solar energy system to minimize our monthly electric bill.

But we honestly don’t need as large a house as we purchased.

Since we aren’t planning on moving, the extra money we spent to purchase our home and the higher ongoing costs associated with that decision are likely to slow our quest for financial independence and early retirement by many months.

Not the end of the world. But still not the best financial decision ever made by the ROMT family!

Can you think of any other ongoing expenses associated with purchasing a home that is larger than needed?

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