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Spend Less Than You Earn (1) – Housing

If you want to achieve financial independence from a traditional paid job, there is a very simple principle: spend less than you earn, invest the difference, and repeat this until you reach your target number.

Easier said than done? It can definitely sound like that if you’re just starting out on your path to financial independence. That’s why I want to share with you how we live well below our means without feeling we are missing out on something.

One caveat upfront: if you’re currently earning very little, or are a single earner with  average income providing for a family, you’re likely to have relatively little wiggle space in your spending. In that case, it might make sense for you to look for ways to increase your income or the income of your family, e.g. by gaining further qualifications or a side hustle. But you might still be inspired by some of the ideas discussed in this post.


High-earners might have trouble saving as well

What seems counter-intuitive at first glance is that it is often quite difficult for people with very good salaries to live below their means as well. This has to do with associating a particular job/job status with a particular lifestyle. House (credit payments), car (credit payments), vacations and so on grow with the salary. And any difference between income and spending that could be invested in financial independence remains small or non-existent – as high-earners rely on their high salary to continue to flow forever (well, till retirement anyway).

To be able to understand where you can lower your expenses, you first need to know how much you’re spending each month.

If this is clear, you can look at the different spending categories to see where you might find savings potential. It’s important you design a life-style you find sustainable long-term. One exception: If you currently have consumer debt, you should cut expenses back to the essentials till you’ve paid off this high-interest debt.

Okay, and now let’s get down to business. German households spend about 35% of their total expenditure on housing, about 14% on food, and another 14% on transportation.

You can check if that’s the biggest items for you as well. Probably yes. So let’s start here.


How can you lower your housing expenses?

A fairly obvious option is to move to a location in your city / region where rents and property prices are below average. Especially in big cities, there are trendy neighborhoods where “everybody” wants to live. And there are the boring neighborhoods, or neighborhoods with a resident demographic that is perceived as less attractive.

Or you have districts that are “on the wrong side” of a river, a road or just an imaginary border. Cologne or Hamburg provide classic examples of this. The districts “on the wrong side” can be just as central or even closer to the city center than more sought-after neighborhoods.

Interestingly, newcomers might find these parts of the city completely okay, and the rejection of a certain neighborhood is often marked by long-standing prejudices not necessarily in line with the current situation. In addition, if you opt for a lower middle class/middle class neighbourhood with no wow factor, you have the advantage of not feeling obliged to “keep up” with your neighbors in any way.

Obviously, you should feel comfortable and safe where you live. But that is a subjective assessment. So best make up your own mind.


Consume less housing

In addition to the choice of location, I have a very simple tip for you, that we have very profitably followed ourselves. Decide to use less space in housing than the average person. In Germany, the amount of square meters per person has doubled since the 1960s.

In my own experience, this can be put into practice in every stage of life. It’s easiest while studying /training for a job and at the beginning of professional life because “lifestyle inflation” hasn’t yet crept in. I lived in a flat-share while studying, so did our son, and he continues to live in a flat-share as a job starter as well. That’s certainly the cheapest option.

There are also projects, e.g. set up by building communities, implementing housing concepts  with smaller individual rooms/apartments combined with shared space. Sometimes this is also paired with intergenerational living. Building communities do not necessarily build for buyers only, there are also projects which will take in tenants. Just make yourself familiar with what is offered in your region.


Think small

But even if sharing an apartment with others is not for you (anymore), you can save if you do not make a large average in rooms and square meters your benchmark. I worked in Paris, where most of the people I knew lived in flats that were quite small by German standards. But the quality of life in Paris was certainly not worse than in Germany.

So when I returned to Germany, I found it completely normal as a small family – our son was just born – to move into a 2 ½-room-apartment with only a little more than 60 sqm. Eventually, this wasn’t sufficient for us anymore. As we both worked full-time, we took in au-pairs for several years and needed an additional room to lodge them. But even then we stayed well below our means by moving into a terraced house with 3 bedrooms, 1.5 bath, on 110 sqm.


Size down

Now that our son’s moving out, we have minimum one room too much for my taste. Yes, it’s nice to have an additional guest-room, but it’s definitely not a need for us. If you’re renting, you can move to a smaller apartment after your children have flown the nest.

If you live in a region where rents have risen sharply, a smaller apartment may not get you a saving. Depending on your local market, it may make more sense to use such an “extra room” as an additional source of income and rent it to a student or through AirBnB, for example.



There is another option that I personally find quite intriguing: domestic geo-arbitraging. It cannot be implemented as profitably within Germany as in the USA, unfortunately.

Basically, “geo-arbitraging” relates to the advantage in cost / expenditure you get when you earn your income in the (stronger) currency of one country while living in another country with a lower cost of living (and usually a weaker currency). A classic example would be the USA versus Mexico. Or German retirees moving to Central / Eastern Europe.

But there are also differences in costs within a country. This is particularly interesting in the USA because of the different income tax and VAT rates in the various states. Despite the federal structure, these tax differences do not exist within Germany in most areas. One interesting exception is the tax you have to pay when purchasing a house or an apartment.

Nevertheless, there are differences in the cost of living and in local taxes and fees within Germany. If you are not bound to a certain town/region, you can also consider using geo-arbitraging to increase your savings potential – not only regarding housing costs.

And living in another country or region for a while is an enrichment apart from the cost savings aspect. It broadens your perspective and I can only recommend it  based on my own experiences. So why not give it a try?

Financial Independence Rocks!

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