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Financial Independence Core Principle #3: Eliminate Your Largest Expense By House Hacking

Third and final core principle. House hacking is by far the most powerful way to begin your investing journey. When you think about getting ahead in your investment journey, eliminating your largest expense by house hacking becomes powerful. For 99% of people, the largest monthly expense you have is housing. If you are able to eliminate your largest expense by house hacking, you will put yourself in a position to aggressively save.
What Is House Hacking?
Let’s first answer what house hacking is. I go into much further detail on house hacking and different ways to house hack in this previous post. In the most simple terms, house hacking refers to purchasing a single family or multi family home and renting out portions of it. There are many different strategies to go about doing this, but the concept is to reduce your living expenses. The best house hackers are able to live for free or even make a little bit of money from their home.
Common Excuses to Not House Hack
What are the most common excuses I receive when I tell people that I house hack?
  • I have a family and wouldn’t feel comfortable house hacking.
  • Renting is just more simple and I don’t want to deal with a home.
  • I enjoy living on my own and don’t want to live with others.
  • Roommates? Yeah, I graduated from college already and I am a grown adult. I want my independence.
  • I don’t have the money to buy a home.
  • I don’t make enough to buy a home right now.
Cool, so what I hear is you have a fixed and limited mindset. Awesome. Just make sure you are aware that all the above excuses are those of people having a fixed mindset. These are all excuses and not valid.
Have a family and don’t think it is safe? Buy a multi-family property and you will have your own space. Even a single family home with a detached 1/1 unit would do.
Don’t have the money? Money is abundant and available these days. Stop making this excuse. If you had to raise $20,000 tomorrow to get in a deal that could pay off hundreds of thousands of dollars, would you be able to get the money? It isn’t the fact that you don’t have money, it is that it’s easier to make this excuse.
I don’t make enough money. Interesting, did you know lenders can help qualify you for a loan with the rental income counted as part of your income? Stop with the fixed mindset.
Why Is House Hacking A Core Principle
House hacking is a core principle because I simply don’t see why you wouldn’t do it. It makes too much sense to do. There are many different ways to effectively house hack. Any and all excuses you could have for not house hacking are just that, excuses.
I wish I knew about house hacking even when going to college. I would have bought a property in Buffalo, Arkansas and then Bethlehem, PA when I lived in each. Now that I have learned and successfully house hacked my first property, it is time for more.
How Am I Currently House Hacking
Want to hear the full story about how I got started house hacking? Checkout my recent podcast I was interviewed on where I speak about exactly this.
When I moved to Florida, I purchased a single family home in a nice area. I had no intention of house hacking at the time because I had never heard of it. I knew I wanted to buy a home versus renting an apartment. I was tired of paying someone else’s mortgage. I stumbled into house hacking when a friend of mine asked to come down for a few months. From there, I took it and ran with it.
My current house hacking strategy is renting out by the bedroom. I live in the master bedroom in my home and have three other bedrooms I rent out to young professionals living in the area. I bring in $2,400 per month in rent on a mortgage of $1,650. After all expenses, I typically make $100-200 per month. That is right, I get paid for the privilege of living in my own home!
My Next House Hack – Changing My House Hacking Strategy
For my second house hack, I plan to leverage a different strategy. I am planning to buy a multi-family property where one of the units is a 1/1. The goal is to get one of the following:
  • Single family home with a detached 1/1 unit
  • Duplex with one unit being a 1/1
  • Triplex of any kind with one unit being a 1/1
This next house hack will be a big step in my continued venture in investing in my financial independence. I am excited for the next steps in my journey and hope you seriously look into house hacking.
Key Takeaways:
  • Your largest expense is typically housing. For that reason, you should look to eliminate your largest expense by house hacking!
  • Stop making excuses on why you can’t house hack. I can find a reason why every excuse is not valid.
  • There are many strategies. Each can be used depending on your life situation and market you live in. Don’t think there is only one way to do this successfully.
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Financial Independence Core Principle #2: Start Early to Realize the Power Of Compound Interest

Have you ever wondered why people talk about investing early in your life? The simple reason is the power of compound interest. If you start investing early in your life you will realize the power of compound interest and will greatly speed up your path to FI. This is an incredible way to build wealth at a young age.

Want to see what the power of compounding can do? You can see a simplified compound interest calculator here, you can input a few numbers to see what the power of compound interest looks like.
Let’s take the below example over a 30 year timespan:

  • You started with an investment of $500
  • You add $100 to this investment every month
  • Let’s assume this investment earns you a 7% return

What Does Compound Interest Look LikeIn the above example, here is what your money would look like after 30 years!

What are we looking at? The y-axis indicates the dollar value. The x-axis indicates the number of years. The blue/green line shows the amount you contributed over time and the red line shows the future value of the money after compounding.

Here is what I find most interesting about compound interest. Early on in the investment, you won’t see much difference between the red and blue/green lines. For example, in the graph above, you don’t see much difference in the two lines until year 14. This would make most believe the strategy isn’t working. Some would quit. Some would think they wasted a bunch of time. But wait, there is more.

It is the later years where you begin to truly see the separation. Beginning around year 14 we begin to see exponential growth take place. Growth compounded on more growth will only speed up this curve faster as you look further out.

Don’t believe me, let’s look at what a 50 year time horizon would look like:

But What If I Didn’t Start Early?

This is a very common question I get. Many believe if they don’t start early then they should not start at all. This is part of the challenge of having a Fixed vs Growth mindset. If you want to read more about what the difference of theses mindsets, click here.

Don’t let the fact that you didn’t start young stop you from starting! You learn new information every day. Take the new information you learn each day and figure out how to apply what is relevant. Investing in your future self and the ability to become financially independent will always be relevant.

Key Takeaways:

  • The power of compound interest is real. Be patient and start early!
  • If you haven’t started yet and you aren’t young, SO WHAT! Start now. Don’t let this be the excuse to never get started.
  • The longer you look out on a compound interest timeline, the more compounding you see. This is true for any scenario you plug into the calculator.

As always, don’t forget the first core principle: Your money should make money for you.