How to Tell If You’re “House Poor”
In this YouTube commentary, personal finance expert Ramit Sethi critiques the cultural myth that homeownership equals success and warns that many buyers become "house poor". He reviews a series of TikTok clips from everyday homeowners who describe financial distress after purchasing homes, using their stories to illustrate hidden costs such as maintenance (1‑3% of purchase price annually), property taxes, insurance, HOA fees, and unexpected repairs. Sethi then walks through the core math he uses to decide whether to rent or buy: total cost of ownership (TCO), rent‑to‑price ratios, the 28‑30% of gross income rule, and the opportunity cost of tying up a down payment. He shows a concrete example where a $330,000 down payment could grow to $2.6 million (inflation‑adjusted) or $6.5 million nominally over 30 years at a 7‑10% return, arguing that renting and investing often yields a richer life. He also explains landlord economics (landlords cannot charge arbitrarily), warns against lifestyle creep, and offers practical scripts for answering “why aren’t you buying?” He promotes his Money Coaching program for deeper guidance and includes a brief sponsor segment for term life insurance. Throughout, Sethi maintains a conversational, slightly sarcastic tone, mixing empathy for struggling homeowners with skeptical, data‑driven analysis.
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Buying a house can be a great decision from a lifestyle or from a financial perspective, but it can also leave you house poor. And based on these TikToks that my team pulled for me, a lot of people are financially drowning after buying their house. I'm the guy on Netflix helping couples fix their money, and I've written two bestselling books on personal finance. And stick around because at the end of this video, I'm going to break down the exact math that I use to decide whether to rent or buy. You might be surprised, especially because I'm a multimillionaire who chooses to rent. I got to tell you, most people never run this calculation, and it is the reason that so many people end up house poor. All right, first video.
I bought a house when I was 26 and fell immediately into poverty. Okay, when I lived with my parents, I was living my best luxury lifestyle. I had no bills and I had a full-time 9-to-5 job. I was working as a nurse. Okay, I was killing it. I bought my own house. That first mortgage payment came in and I was like, oh, this is a situation.
Let me explain what is going on here. In America, we are taught from a very young age that you've got to buy a house to be successful, that renters are poor people. And in America, more than anything else, we hate what the poor do. That's why people don't just merely dislike going on the bus. They'll say things like, ew, smelly. I would never take the bus. You don't believe me? Just text your suburban mom and say, hey, Mom, why don't you try taking the bus next time you go out to that restaurant? Just watch her reaction. So we are told from a young age, buy a house, and then there's these question marks, and then somehow you pop out at the end with generational wealth. It all works out, but no one ever really explains the details of it. And we don't question it because this is America's number one religion— home ownership. We simply go, yeah, sounds great. I believe, I believe. But we should be questioning it and saying, hey, wait a minute, how much am I going to pay? What happens when the dishwasher breaks or I have an HVAC issue? Who handles that? I don't know anything about dishwashers. What am I going to do? And on and on and on. We don't. And so the first mortgage payment comes due and we are shocked. You should never let yourself get in this situation. You should be too skeptical and too smart to get blindsided by something that you are now going to have to pay for 30 years. Let's keep going.
But at first you think you can handle it, right? Like, you know, what's, what's a couple thou? What's a couple thou? I got it. But then the pipes in my 80-year-old home broke immediately.
As an example of how to plan for how much your house is actually going to cost you, I know the basic guidelines for maintenance. They are 1 to 3% of the purchase price every single year for maintenance. 1%, 2%, or 3%. Now, I know myself. I don't want to go to Home Depot. I don't want to learn how to use all these tools. I'm not going to buy a 2x4. I don't care. I am going to hire people who are definitely going to take one look at me, Google my name, see my house, and they're going to triple the price. That's life. Now, I hope it's 2.8% or 2% or even 1.5%, but I am being conservative in my assumptions, as I would recommend you do the same.
As soon as I bought the house. Wiped out my savings. Then another pipe in a different area of the house broke. Okay, that's— I'm struggling. Okay, I need help. Then my neighbor's pipe— it was a twin house— her pipe broke.
This is difficult to hear because a lot of this is not her fault. Her pipes broke, then a neighbor's pipes broke, and all these things. It's kind of like taking one punch and you're like, I could take it, I'm strong. You take two punches, oh, that hurt. And then 3 punches and you are just out. So I have a lot of compassion for folks like this. Sometimes you just can't plan for it, but you can at least put money aside in advance.
And then my water heater broke. When I tell y'all, I went from living in the lap of luxury to destitute immediately. Now, don't get me to fooling y'all because it was worth it in the long run because that house is now worth like 2 times what it was worth then. So I'm actually doing pretty good.
I'm glad it turned out well. I hope that this has been a positive experience, and I love that this creator is sharing what she felt like in the midst of all these pipes breaking. She does mention something curious. She says it was all worth it because that house is now worth twice what it was worth. Can I share something that is quite shocking to most people? Most people actually don't know if buying their house was a good decision or not. They literally think like, of course it was a good decision. I'm a homeowner and I have Equity. But when I ask them, how do you know if it was a good decision? They're like, uh, and in their head they're going, because everybody told me buying a house is a good decision, how could it not be a good decision? I have people who routinely tell me, my grandma bought a house in Austin, Texas in 1982 and it cost $50,000 and now it's $750,000. They think that she made $700,000 of profit. What they don't factor in is all of the phantom costs. They don't factor in taxes. They don't factor in interest. They don't factor in opportunity cost. They don't realize that if they had simply taken some of that money and put it in the stock market, they would have had 2, 3, 4, 5 times more money. Now, please don't write me saying, Ramit Sethi, you can't live in an index fund, because that's what we're talking about here. There are lots of options. You can rent and invest. You can buy at a certain point. There's lots of different ways to think about it. But I'm a bit skeptical when she says, well, it all worked out in the end, especially because COVID dramatically inflated the price of housing, something that is extremely unlikely to ever repeat. And a lot of people now think that, well, my house went up 2x in 3 years, that's how it goes. I question it. I would want to see the numbers more carefully. My philosophy on money is to focus on the big wins, the major things that matter, so that you don't have to track the price of limes. Now think about how important it is to make sure that you protect the people you love when it comes to your money. Like, if you have a partner or children who depend on your income, one of the smartest financial decisions you can make is getting term life insurance. Term. It's simple, it's inexpensive, and it ensures that your family has options no matter what happens. That's why I want to tell you about today's sponsor, Fabric by Gerber Life. Fabric by Gerber Life is term life insurance that you can get done today. And it's made for busy parents like you, all online, on your schedule, right from your couch. You could be covered in under 10 minutes with no health exam required. Fabric has flexible, high-quality policies that fit your family, like $1 million in coverage for less than a dollar a day. And even if you have life insurance through your employer, that may not offer enough protection for your family, and it can disappear the moment you leave your job. Fabric stays with you no matter where you work, and there's no risk. There's a 30-day money-back guarantee and you can cancel at any time. So if you've been putting off life insurance for a long time, take a few minutes today, knock it out, and you will be done. It's one of the highest leverage decisions that you can make for your family's financial security. Join the thousands of parents who trust Fabric to help protect their family. Apply today in just minutes at meetfabric.com/RamitSethi. That's meetfabric.com/RamitSethi. Let's look at the next video.
Buying a house is completely overrated.
Like, first of all, this person has a neck tattoo. I need to talk about this. I always dreamed, what would life have been like for me as a single guy if I had a neck tattoo? Can anyone tell me? But I'm like, yo, there's not that many Indian guys with a fat neck tattoo, so I always dreamed about it. Anyway, I like this guy's tattoo.
You guys see all this grass right here in that barn? That's all mine. I own that land. Oh yeah, and all that, that, that.
Owning land is like my worst nightmare. It's amazing, like so many people, we have this Manifest Destiny concept in America, like I need to own my own land. My wife and I just laugh, we're just like, that's literally the last thing we want.
3 acres all around. If you don't know how big an acre is, holy shit. But yeah, I bought this house last year for my mom, it's her retirement home. We're in the hills and I had been renting for, I would say, 2 years. We've all been renting for a long time, like paying over $10K a month to rent. Everybody on God's green earth looks at you and thinks you're crazy for, oh, you rent?
You rent? Why not just buy? Anyone notice a trend here? Everyone looks at you like you're crazy. You rent? Why don't you just buy it? I got to tell you all something. People stopped saying this to me. They stopped saying it to me once I had I Will Teach You to Be Rich, and they knew, oh, this guy's— they just thought this guy's a fucking weirdo. But for most people who don't have this kind of stuff, they just think you're stupid. Like, what is wrong with you? Why would you not buy and accrue equity? Because in their head it worked for them, even though they don't understand if it worked because they don't know their numbers or they certainly don't understand why it worked. They don't understand NIMBYism. They don't understand a generational run-up during COVID They don't understand any of this stuff. Literally, it is a childlike approach. I bought a house. 15 years ago, I spent X on it. It's now worth 2.5X. I'm smart and you're stupid. But they don't go deeper to understand, like, oh, are you renting and investing the difference? What's TCO? What is the rent ratio? Or all this stuff. They don't understand that. So you got to approach it with a smile. Don't take it personally. And you can use this little script that I came up with. I would say, you know what, when I ran the numbers, I realized that buying doesn't make sense for me. Notice the phrase I used at the end. That is very intentional. I tested it. For me. When I say for me, it's very difficult to argue with, and that will quietly shut down some of the comments. Unless it's from your mom or dad, in which case, prepare to spend the next 55 years arguing with them.
Because when you rent, you're like paying half the fucking mortgage, by the way. If you're in a $5 million house and the mortgage is $30,000 a month, they're going to rent it to you for $15K because that's just what's on the market.
Hey everybody, we just discovered something quite dramatic, something that less than 0.1% of Americans know, and that is landlords cannot simply charge whatever they want to cover their taxes and interest and maintenance and all that. You, you know what I'm talking about because you've heard people say you're paying your landlord's mortgage. Maybe often you are not covering your landlord's total cost of ownership, and most of the time your landlord doesn't even know what their total costs are. Let me explain Hey everybody, it cost me $60 to create this book, so I'm going to charge you $68 for a nice little tidy profit. That's not the way it works. What is the retail price of this book? $19.99. Why is that the price? Because that is what the market will bear. So landlords can have expenses that might be, let's say, $8,000 a month. But if the market will only allow them to charge $5,000 a month, that is what they can charge. You need to understand this. It is one of the most basic principles when it comes to real estate, and especially in cities like New York, LA, San Francisco, Palo Alto, Menlo Park, Santa Monica, Malibu. You can often rent for less than half of what it would cost you to own the exact same place.
Sure, you may be throwing your money away, but people don't talk about fucking property taxes. I paid like $15,000 to fucking in property taxes.
I like that he says he paid $15,000 in property taxes. If you right now were faced with a $15,000 expense, where would the money come from? Do you have it sitting aside? Are you putting $1,000 every single month aside for this once annual expense that you know is going to come your way? Oh, and by the way, it's going to increase most years for the rest of your 30 years and beyond. No, this is the perfect example of why people end up house poor. They skip the planning. And they jump straight to buying the house. A house is too big of a decision to make it like that. I want to show you how to be deliberate and methodical about the biggest purchases of your life. I have a program called Money Coaching. Inside Money Coaching, we show you how to run your numbers carefully, how to factor in the kind of lifestyle that you want, and ultimately how to make the right decisions that power your rich life. And when you do this, you can immediately tell whether buying a house will make your life better or whether it's going to trap you for decades. If you want help making that decision before you make the biggest purchase of your life, I recommend you join Money Coaching. It's going to give you clarity. It's going to show you exactly what math to run and also how to factor in all the lifestyle questions that you're thinking of. You can scan the QR code on screen. Or click the link in the description below to join money coaching today. Okay, what's next?
I moved into a place that I can't afford and now I'm stuck. I recently moved into a luxury apartment and though it is nice and I like it and all these other things, I realized that I can't afford it. And when I say I can't afford it, it does not mean I can't pay for it. Like, I have enough money to pay for it as far as money's in my bank account. But as far as like what I want to do in life, I can't really afford it.
Hallelujah. Already I am enjoying this video. One of the most shocking moments that has happened to me in the last decade is two guests came on my show and they said, oh yeah, we bought a mattress, not anything crazy. And I asked them, how much was your mattress? And they said $2,000. And I'm like, you think that that's an ordinary price? And they go, yeah. I go, "How did you decide if you could afford that mattress?" And you know what their answer was? "I gotta invest in my back." And that was the moment I realized people actually have no idea how to answer the question, "How do you know if you can afford it?" I'll ask you right now. How do you know if you can afford that $50,000 car? How do you know if you can afford that $565,000 house or a $2,500 mattress? If your answer does not have a number in it, you don't know how to answer that question. A proper answer to the mattress question should be something like, well, the baseline mattress that we can assume costs $500. We decided that because our back is important to us, we have $1,500 that we saved up in our guilt-free spending. We've allocated that and we are still below 35% guilt-free spending and 60% fixed costs. Do any of the words I just said mean anything to you? If not, you need to go back and you need to read I Will Teach You to Be Rich.
In a sense of now I'm in a position where it's like I'm here and I pay so much in rent. It's to the point where it's like I can't even go on a trip right now. Like, I can't.
A lot of people watching this are going to be angry at her. I already know what a bunch of boomers are going to be doing. Hold on. Uh, when I was younger, we had 16% interest rate and we didn't dream of taking a trip.
Whoa.
Well, guess what? When you had 16% interest rates, the price of housing was dramatically lower. And why are you trying to shame young people for wanting to take a trip? There's nothing wrong with that. Their rich life is certainly different than yours. And I'm sure you didn't appreciate it when you were making decisions for what you want to do and your grandpa was telling you about his great-grandmother who grew up in the 1800s and how they saved money doing this and that.
Why?
And I haven't traveled in a while and I'm very big on traveling. Like, I'm very big on going out and stuff like that. And I can't really do it as much as I would like to because it's like I can't afford it. And I don't know why we do this to ourselves.
I do. I know why we do it to ourselves. Because you basically listen to a bunch of people whispering in your ear for the last 25 years telling you homeownership is the only way to build generational wealth and there's no other way to build equity. And on and on and on. And you never stop to critically think about what do I want for my rich life? Is my TCO, or total cost of ownership of housing, less than 28% of gross income? Hmm, can't do that in a very high cost of living city. Maybe it can stretch it to 30, 32% depending on debt. You never did any of this. You simply said equity, just as so many people do, and never stop to look at the whole chessboard.
Like, I don't know why when we feel like we get a new job or we start making money, more money and stuff like that, it's like, oh, I have to increase my living expenses.
Mm. This is a provocative comment. Now let me tell you something. The personal finance industry calls this lifestyle creep. The idea that as you make more money, you will slowly start to spend more on eating out and travel and housing and accessories, all kinds of stuff. I personally don't believe in lifestyle creep, not for myself. I did not creep into this sweater. Okay. I knew exactly how much I could spend, and I chose very deliberately. And that is what I do with my money. I don't trip and fall into this apartment. I don't trip and fall into the trips I take. I am deliberate and conscious. That's what I want for you as well. Now, I actually think when you earn more money, you should spend more money, but you should also save more money and invest more money.
Because that's what I was thinking. I was like, okay, well, you know, now I'm making more money, so it just makes sense for me to get a nicer place. It just makes sense for me to get a luxury apartment.
Amazing comment on how often we slide into these major life decisions. She said, I was thinking, I just— I make more money, so it makes sense for me to get a nicer apartment. Huh? What does that mean? Where's the math? Where's the calculation? 'it just makes sense' is a phrase that you should beware of. 'It just makes sense for us to move in together. We're both paying rent.' Uh-uh. Stop. Think deliberately about whether this relationship is right for you. 'It just makes sense to be married. We've been together for 6 years. We're not getting any younger.' Nope. That's not how we make the biggest decision of our lives. 'It just makes sense for us to buy a house.' 'It just makes sense for us.' And on and on and on. Stop using that phrase.
Because I'm making this amount of money and people who make this amount of money live in this kind of place.
Oh, that's amazing. I love this. It's so honest. I wish more people were this honest. The idea that let's say I make $150,000 a year, I need to be driving this kind of car. It's kind of funny. Like when people found out that I'm the I Will Teach You Rich guy and then I rent, they were like, wait. I could see it in their eyes when they would come to my apartment. They're like, wait, what? He's rich, but he rents. But renting is for poor people. And he's not poor. I don't think— it's very confusing to them. You need to be very deliberate about what you want to spend extravagantly on and what you want to cut costs mercilessly on. As an example, I drove a 19-year-old car. It just was not important to me. On the other hand, I love travel. I love luxury hotels, clothes, and fitness. So I spent a lot of money on that. But you cannot spend a lot of money on everything. It's actually better to pick one money dial or two and really go extravagant on those, really turn that dial up, versus trying to spend just because that's what people who make $150K do.
Like, I'm in a position I honestly and truly can say, like, if something drastic would happen— knock on wood, I pray not— I don't know if I'll be able to afford it.
I never want to get in a position where one financial problem can take me out. Warren Buffett said at his Omaha meeting that I went to, he said, we have set up Berkshire, his company, so that we never run out of money. I just found that incredibly inspirational, the idea that we can set up a financial moat so that we do not ever worry about one emergency taking us out. You know, I created a whole video on how to do this. I'll link it for you. In the comments below. And if you want to feel confident about the biggest financial decisions of your life, especially buying a house, hit subscribe. Okay, next one.
My biggest financial regret that I've ever had in life was purchasing a home back in 2021 for these 3 reasons. Number 1, I had to put a 30% down payment on my home. My down payment was roughly around $330,000.
Okay, hold on. I need to run a quick calculation just to show you how opportunity cost works. This person mentioned they put a down payment of $330,000. So I'm going to plug it into my calculator. You can just Google Ramit Sethi calculators and you'll find a bunch of my calculators. $330,000. We're going to add zero. We're just going to let it sit and we're going to do that for the next 30 years. And we're going to assume a 7% return that already accounts for inflation. Folks, you would have $2.6 million. In today's money just from the down payment. No maintenance, no pipes, nothing. And by the way, just to show you a little shocking math, how much would you actually have in your bank account? This is not adjusted for inflation. Everybody sit down. Okay, everybody go like this. I'm ready, Ramit. I'm ready. $6.5 million. That is taking the down payment. That is investing it In an index fund, we can reasonably expect approximately 10% per year or 7% after inflation. That means you could pay for all of your housing costs in perpetuity, forever, likely just off the interest alone. Or you could have invested that money for 20 years, had millions, then taken it and gone and bought a house in cash if you wanted to, or paid the mortgage, whatever. The point is, I need you to understand this. If this math was shocking to you, you are not ready to buy a house.
I bought my 2-bedroom, 3-bath townhome for $910,000. And the reason why we had to put so much down at the time was just because of my income. I was only making around, I think, $100,000 to $110,000.
Why the hell would you buy a $900,000 house if you're only making $100,000? Again, need to run the numbers. Back in the day, people were buying houses 2.5 times their annual income. OK, I know things are quite different now. 3 times, 4 times, people are doing 5 times. But just because they're doing it doesn't mean it's right. You need to be thoughtful for yourself, not just what your dumb friends are doing. Remember what your mom and dad used to say? Would you jump off a bridge if your friends did it? And yet we do the same exact thing as adults. Actually, you know what? That's what you need to tell your parents when they tell you, why aren't you buying a house? You go, Mom, would you jump off a bridge just because everyone else did? And then she's like, what? And you go, that's what you used to tell me. But right now, a lot of people are just doing this. And I think a lot of people are buying a house because everybody else is doing it. And then she's going to get extremely mad at you. And then you go, gotcha. And then you realize you probably should not use these techniques with your mom and dad. It's not nice. I use them with internet trolls, but don't use them with your parents.
Now, my monthly mortgage payment, if you factor in interest, taxes, HOA, etc., it's roughly around $4,200. If I was renting right now, I could probably rent a really nice 2-bedroom condo or apartment for $3,500.
Hold on, I need to get control of my emotions. Let me restate. He put down $330,000, which could have turned into $6 million nominal over 30 years.
Okay.
In addition to that, he could rent a nice place for $3,500, but his Payments are $4,200. Do you see how much money is being poured into this house? Not just the $330,000 one time, which turns into millions of dollars, but also the roughly $1,000 extra per month to own. And why? You have an alternative. You could rent. You could invest the difference, the roughly $1,000 per month, And you could take the down payment and you could invest that, or you could get a nicer place or go out to dinner. There's so many different ways to look at this, but so many of us are fixated on we've got to buy and it just narrows down our field of view.
So that would save me $700 a month. However, had I just not bought a home, I could have taken that $300,000 and, you know, $10,000, $20,000 that I used as a down payment and just invested in the stock market. We all know the stock market bottomed in 2022 and, you know, fuck, man, you see where it is today, right? I could easily have an extra, at the very minimum, couple hundred thousand dollars in my stock portfolio.
I'm really liking this guy. I love that he's sharing this. Not enough people share this type of information. I like that he's walking through the numbers. I like that he's very clear about knowing the difference between buying versus renting. This is great.
Number 2, in the market that I live in, renting is actually cheaper than buying a home.
Again, this guy's awesome. He understands that it is possible to have renting be far cheaper than owning, and he's quite sophisticated. He said, in the city that I live in, in the market that I'm in, that has an understanding of different markets. The real estate market in Omaha is different than the real estate market in Tribeca, New York. So when people say it's not cheaper to rent than to own, you've got to say where things are different. But in general, at least as of right now, it is cheaper to rent than to own in 100% of the top 50 US metro cities.
Honestly, if I could do it again, I would just rent a nicer apartment or a condo, whatever, in a nicer community, and then just invested my money instead in the stock market. Market.
It's kind of interesting, most people are quite shocked when I tell them I have rented for over 20 years. I've rented nicer places in cooler neighborhoods and had virtually no maintenance fees. Like, I text the landlord and it's fixed. And one of the most surprising things to me is the common reaction is, oh, must be nice, cuz my landlord never fixed anything. And I always ask a question, I say, Did you ever consider paying a little bit more to get a higher quality landlord? And they actually look at me completely mystified, like, what the fuck? No. They don't understand that as a renter, they actually have power. You think that I just rent a place without talking to the landlord? I interview them just as well as they interview me because I have money and my money is good money. So I'll talk to them. I'll say, you know, how long did your last tenant stay? Here's what I'm looking for. I'm planning to stay for several years. Are you planning to sell this unit anytime soon? And we get to know each other. Now, you can't guarantee that they're going to do exactly what they said, but I can make the odds on my side. Let's look at the next video. My mortgage payment is going up almost $500 a month. $500 every month. I have a fixed interest rate, so it's not that. Nope. It's my escrow account. Apparently my homeowner's insurance and my property taxes just skyrocketed, but nobody thought to tell me about this until I was already $3,200 short. This is a very common problem, and I want to talk about how to handle it. The most important thing you can do when considering buying versus renting is to be highly skeptical of everyone you will meet during the home buying process. You need to understand that everyone in the real estate industry wants a piece of you. That is why the real estate industry is one of the largest, most profitable industries in the world. There is massive amounts of money to be made, and you don't even realize that you are funding it. We're talking about everything from inspection costs, most importantly, the interest that you pay over a secured 30-year mortgage. There's maintenance. There's all kinds of things. But most people walk into this transaction and they literally ask their loan officer for advice. They ask their realtor for advice. Those people are making money off of you. That's like a cow walking past the butcher and asking advice. Hey, what do you think I should do? Which direction should I go? That butcher wants to kill you. One thing that this video reveals is that so many people buy a house believing the phrase, "Well, I'm buying so I can lock in my housing costs." And they'll say, "Rents will keep going up, but my mortgage is fixed forever." Well, your mortgage may be fixed, but what about your total cost of ownership? So many people are shocked that their property taxes have gone up by $1,000, $2,000, $10,000 a year. And that's going to continue going likely for a long time. Okay, what's next?
I'm in the process of buying my very first house as a 28-year-old with no kids and not married.
Already don't understand what's the impetus for buying a house if you're 20 years old, unmarried, no kids. Again, it can be part of your rich life, but I have almost never met somebody who bought a house in their 20s and then clearly laid out why buying a house was a critical part of their rich life and they were willing to accept the tradeoffs and the ramifications. No, it's just like Oh, if I don't buy now, I'm never going to be able to afford it, and renting is bad.
Um, I close in 7 days, and I feel like I should be super excited right now and happy, but in reality, I am terrified, and I am so nervous, and I want to back out.
Okay, I want to point out something. Um, there's a lot of statistics out there showing that new home buyers regret buying a house. You see these all the time. 28%, 37% of— I never post those things because I think they're bullshit. Everybody who makes any major life decision that changes everything, it's scary. Why I Rent and How to Know If You Should Buy or Rent. Here's what happens for the biggest purchase of our lives. Most people only look at the monthly mortgage to decide if they can afford it. They don't actually look at the real cost of owning a house. The total cost. That is a huge mistake because it's not the mortgage that you need to be paying attention to. It is TCO, the total cost of ownership. Let me show you how I evaluate the biggest financial decision of my life, buying a house, and the exact way that I recommend you do it too. First, you compare two numbers: total monthly cost of owning versus total monthly cost of renting. Notice that we are starting with the numbers and we will certainly factor in the non-financial considerations like school district or renovation, or you just want to buy a house. But we always start with the numbers first. The total monthly cost of owning includes your mortgage, taxes, insurance, closing costs, which need to be amortized or spread out over the number of years that you own the house. Maintenance, which almost nobody properly factors in. You can use 1 to 3% every year of the purchase price of the house. That's a lot of money. Upgrades, HOA fees, and the biggest one that people ignore, the opportunity cost of your down payment. That is the down payment that you are putting towards the house, which you could have otherwise invested. Now, on the other hand, the total monthly cost of renting usually just includes rent, utilities, and renter's insurance. Maybe you want to factor in how often you're going to move. You should factor in those moving costs as well. Once you have those two numbers, here's the question that I ask myself, the same one I want you to use. Does buying this house lead me to my rich life? Does buying this house create more freedom for me or less? Not, isn't it time to buy? Or hurry up, we better buy because if we don't buy now, we're never going to be able to afford it. Never make a decision like that based on scarcity. A lot of people say, am I throwing money away on rent? What the hell does that even mean? Did you ever say, I'm throwing money away on sushi? I'm throwing money away on that amazing vacation in Mexico. You never said that. You only use this phrase because some realtor shoved it down your throat and you never stopped to think critically about why would I be throwing money away on a roof over my head? For me, every time I have run this math, buying would have cost me way more than renting. Buying would have reduced my freedom financially and emotionally. And buying is just something I don't want to do right now. My wife and I both have agreed at this point in our lives, not interested. At some point, sure. But right now, no thank you. So we rent. Not because renting is better for everyone, but because it's better for us. Now, if you want to go deeper, I want you to watch this video next. It'll show you the exact math I use to decide whether buying a house ever makes sense.
