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3 Ways to Help You Get Rich Quick
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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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The following post is by MPFJ staff writer, Greg Johnson. Greg is a proud husband, father, and debt crusader who is in the process of becoming debt free. Along with his wife, Greg co-founded the personal finance blog Club Thrifty, where they encourage readers to “Stop Spending. Start Living.”
At some point, almost every person will dream about how they can get rich quick. Some of us dream of winning the lottery. Others look for schemes to make as much money as they can doing as little as possible. Still, others dream of turning our hobby into a money-maker so that we can quit the day job that we despise. For some people, these dreams actually come to fruition. For the rest of us, I’m here to tell you that you too can get rich quick. It is just that getting there may not follow the path that you thought it would.
So, how does the average person get rich quick? I’m glad you asked!
1) Spend Less Than You Earn
The number one rule to get rich quick is to spend less than you earn. It seems so simple doesn’t it? So, why is that concept so hard for most of us to understand? Why is it that we are constantly living beyond our means?
While I’d love to give you a succinct answer, the fact is that the reasons vary as widely as the people do. For some, it is the easy access to available credit. For others, it may be that they have a difficult time saying “no” to themselves. Regardless, if you want to get rich and you want to do it quickly, you have to start by adhering to this simple rule.
Trying to become wealthy yet spending more than you earn is like trying to sail across the ocean with a hole in the bottom of your boat. You can’t keep taking on more and more expenses without increasing your income or your financial ship will sink. (Try telling this to the U.S. federal government!) Before you can become rich, you first have to learn to control your expenses. How do you do that? It looks like it is time for #2!
2) Create a Budget
The best and most efficient way to control expenses is to create a monthly budget. Budgets are how we tell our money what we want it to do for us. It is how we tame our money into working the way that it should. Budgets allow us to keep track of where ALL of our money is going.
Let me be clear: I am talking about a written budget. Setting aside “X” dollars a month for bills and believing that you can do whatever you want with the rest of your paycheck is not a budget. You must consciously allocate your money into specific expenditure categories by physically writing it down! If you fail to write it down, you will “lose” hundreds – perhaps thousands – of dollars each month by unconsciously spending it on things that you won’t even remember you bought later.
It doesn’t matter which budgeting method you use. (My favorite is the zero-sum budget.) However, you must make conscious decisions about how to spend your money each and every month. If you do, I promise you that you will begin to “find” money that you didn’t know you were spending.
3) Pay Off Debt
The third way to get rich quick is to pay off your debt. Not only do you want to pay off your debt, but you want to do it as quickly as possible. Ideally, we wouldn’t use debt to purchase items in the first place. However, the fact is that most of us have some sort of debt. The less debt you have, the less money you will have going out…and the more you will be able to save! So, it stands to reason that the faster you pay off your debt, the quicker you will be able to become rich.
For some, paying off debt can seem like a daunting task. That is why I recommend using the “debt snowball method.” Start by paying off the smallest debt that you owe first. Make minimum payments on the others. Once you have the first debt paid off, you then take the money you were using to pay on the first debt and add it to your minimum payment on the next smallest debt. In no time, you’ll be seeing progress and eliminating larger and larger chunks of debt. The faster you eliminate your debts, the quicker you’ll be able to save!
Conclusions
You didn’t think that there was actually a way to shortcut building wealth did you? Building wealth takes time and effort. While using these methods will help you to get on the path to building wealth quickly, they are not the traditional “get rich quick” schemes you may have had in mind. However, if you follow these steps, you will see a change in your financial health in no time. Before you know it, you will feel rich too!
How about you all? Do you think it is actually possible to “get rich quick,” aside from winning the lottery or receiving a large inheritance?
Share your experiences by commenting below!
***Photo courtesy of http://www.flickr.com/photos/68751915@N05/6355220839
Considerations for Expanding Globally
The following is a guest post. Enjoy!
Transportation
Meetings
Trade
How about you all? What other things do companies that are just starting to expanding their realm of operations abroad need to plan for?
Share your experiences by commenting below!
***Photo courtesy of http://www.flickr.com/photos/bdointernational/5120341421/sizes/l/in/photostream/
How Frugal Is TOO Frugal?
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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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The following post is by MPFJ staff writer, Kelly Gurnett. Kelly runs the blog Cordelia Calls It Quits, where she documents her attempts to rid her life of the things that don’t matter and focus more on the things that do. You can also follow her on Twitter and Facebook.
- The people on Extreme Cheapskates who urinate into water bottles to save a few cents on their water bill from flushing too many times.
- The parents on Extreme Couponing who bring their young children with them to dumpster-dive for unused inserts.
- Your crazy Great-Aunt Margaret who rinses out Ziplock baggies so she can reuse them again and again and again.
How Can You Save Money in the Presence of Rising Day Care Costs?
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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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Many people have been deeply impacted by the economic downturn. With rising inflation and high levels of unemployment, parents are facing quite a few hurdles when it comes to managing day to day finances. For parents with young children, the struggle is even worse since child care costs have been rising sharply over the last few years.
According to a study by the National Association of Child Care Resource and Referral Agencies (NACCRRA), it has been reported that the cost of child care today exceeds that of sending a child to college across many states in the US.
It has been estimated that the average cost for day care in the U.S is around $11,666 per year ($972 a month). The cost of day care does vary depending on several factors such as location (urban vs. rural), the reputation of the day care, the number of days a child attends day care, as well as the number of children being cared for. Day care costs are typically higher in urban cities versus rural cities. The highest costs have been recorded in places such as New York, Washington, Colorado, California and Wisconsin where day care expenses for infants and toddlers is known to be well over $10,000 per year. On the other hand, the lowest prices for day care for infants and toddlers were recorded in Kentucky ($6,500), South Carolina ($5,800) and Mississippi ($4,650).
These steep prices make it extremely difficult for a lot of families to pay for day care. While the current rates for child care are becoming unaffordable to many, it is not feasible for many families to go without it since many households need both spouses to work to make ends meet.
Below are a few tips that can help to reduce day care costs:
Pick the right kind of day care
Many parents send their children to very expensive day cares, with hopes that their child will be safer or learn more. There are a lot of day cares out there that are more affordable and can most likely provide what you’re looking for if you do your research. Ask friends, family, and colleagues at work if they know of any good daycares. You can then pick a few and check them out personally before deciding on one.
Baby sitting co-operative
This is a fast developing practice in a lot of urban households where parents in a particular neighborhood get together and look after each other’s children. Every time you look after a baby of your neighbors, you get the required number of hours credited in to your co-op account. Then you can later trade when you leave your child at the care of another parent while at work. This can be a very effective way to cut costs.
Tax credit for child care
There are tax credits that assist employed families to pay for their child care expenses. Federal tax credits can help you save up to 35 per cent in child care costs. If you qualify, you can claim $3000 for one dependent and $6000 for two dependents.
Ask family members to help
If you live close to family you could ask for their help once in a while to look after your child. Parents or grandparents especially can be a great source to ask if they would like to baby sit. I have many friends who save thousands on daycare because their parents are retired and taking care of their children during the day. One of my friend’s parents even cooks dinner every day for them to take home. Another option can be to invite family members over to your place for a month during the summer so they can help you take care of your child when you’re at work.
Coordinate with your spouse
Prioritize work in such a way that either you or your spouse can watch your child in shifts. You can coordinate your schedules so one person is always home with your child. For example, one parent can take the day shift while the other works the night shift. Another option is for your child to go to day care part time instead of full time. One parent could work Monday to Friday and the other parent could try to get a shift where they work from Wednesday to Sunday. This would mean the child would only go to day care three days a week instead of five; this can significantly cut down on day care costs, especially if you have more than one child.
Work from home
This in the long run, can turn out to be a viable option for a lot of parents. It may be hard to work while they are up, but while they are sleeping or watching TV, you can try to get work done then. There are several jobs out there that will allow you to work from home, sometimes you just have to ask. You never know, they might just say yes.
How about you all? Does your child go to day care? If so, how much does it costs? If not, what alternative do you use?
Share your experiences by commenting below!
Initial Forex Trading Steps: What Are Forex Pairs?
The following is a guest post. Enjoy!
One of the first things to learn about when you’re getting started with forex is the currency pair. When you begin trading foreign currencies, you’ll see these constantly every day, and they’re important, so you have to understand them properly.
In short, the currency pair is a way of showing the prices of one currency against another in the forex market. With live forex trading, these prices are in constant fluctuation. They are displayed like this: GBP/USD 1.5900, which would mean that 1 GBP is worth 1.5900 USD. GBP refers to the British pound, and the USD is the United States Dollar. The second currency in the pair is called the counter or quote currency; this is the one being referred to. The second one is known as the base currency.
There is an order by which the base currency is usually used; any pair that contains the Euro (EUR) will use it as the base, and then this continues in an order that goes: GBP, AUD, USD, CAD, CHF, JPY and so on. The base currency is usually the domestic currency, for ease of accounting, and the order of precedence is derived from the traditional values of the currencies in respect to one another.
The pairs that are traded most often are known as the majors, and they all include the USD. They are as follows: EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, and USD/CAD. 85% of all forex trades involve the major pairs, and 27% alone is accounted for by EUR/USD alone. Other pairs, such as GBP/JPY are known as crosses, and are not traded nearly as frequently. Newer traders are encouraged to begin with the majors, which are far more liquid. There are many other minor currencies that are quite rarely used. If you’d like some more information, a provider called Alpari have actually covered this topic more in depth in a fairly comprehensive video. You can find out more about the two categories of forex pairs below:
When it comes to looking at forex research and news, professionals will often refer to pairs by nicknames, so it’s always useful to know what these are. There are many different ones, but the main pairs are the Cable (GBP/USD), Fiber (EUR/USD), Chunnel (EUR/GBP), the Funds (USD/CAD), Matie (AUD/USD), Geppie (GBP/JPY) and Kiwi (NZD/USD). If you come across a strange term that sounds like it might be a currency, it probably is.
Once you’re familiar with how pairs work, and understand how they are presented, you can begin to learn about the strategy behind making a profit on the forex market.
How about you all? Have you ever done any forex trading? If so, which currencies did you tend to trade the most?
Share your experiences by commenting below!
How Much Does it Really Cost to Be Middle Class?
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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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The following is a post by MPFJ staff writer, Kevin Mercadante, who is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.
We hear a lot these days about the “shrinking middle class;” is it true?
When we say “middle class,” it conjures up visions of a family living comfortably—but not extravagantly—in a leafy suburban community with good schools. Most people, I think, consider themselves to be middle class whether they’re actually below it, above it, or right about there, financially speaking. It’s pretty accurate to say that the term “middle class” is really more subjective than actual.
Let’s work past perceptions, and take a look at what it costs to be middle class based on typical living expenses.
Here’s my shocking conclusion: it costs a lot of money to be middle class! And because of that, many people who used to be middle class may no longer be.
Defining our mythical family
Let’s start by setting some definitions. We’re going to use a family of four, with a husband, wife, and two children, living in an unpretentious suburban community. The family has a modest home, two cars, both adults are employed outside the home, and the children attend public schools.
We’re going to exclude factors like child support or alimony, daycare, one or more kids in college, a second home, excessive debt levels, and private school attendance. As suburbanites go, this family lives on the down low.
The cost of an ordinary middle class life
Now we’re going to look at the cost of living that this family incurs in living this modest lifestyle, broken down individually. To keep it simple—and for easy reading—we’re going to keep these numbers nice and round.
Payroll taxes. The couple earn $75,000 per year between both their jobs. FICA taxes eat up 7.65%, or $478 per month. For federal income taxes, the family pays little, since they have significant deductions plus the $1,000 per child tax credit. Estimate, $300 per month. State income taxes, $200. Monthly total, $978, or let’s say $1,000 to keep the numbers round.
Housing. The house is worth $200,000 and carries a $120,000 mortgage. They recently refinanced to a 30 year fixed rate loan at 4%, so the monthly payment is $573, plus $77 for homeowners insurance and $350 for property taxes. There’s homeowner’s association dues of $50. Total house payment is $1,050—nice and round, but totally credible at the same time.
Monthly utilities: gas, $100, electricity, $100, water and sewer, $50, trash, $25, cable TV/internet/cell phones, $200. Utility total: $475. House payment plus utilities: $1,525.
Health insurance and medical costs. One of the spouses has family health insurance coverage through work. The plan costs $1,000 a month, but with a 60% employee subsidy, the monthly cost is $400. We’ll add $100 per month for co-payments and deductibles, bringing total monthly medical costs to $500.
Car expenses. One car has a monthly payment of $350 ($10,000 loan balance), the other is owned free and clear. Neither of the children are of driving age yet. Monthly car insurance is $150. The couple drive about 2,000 miles per month and consume 80 gallons of gas (25 mile per gallon average), so we’ll put gasoline at $300 per month. We’ll also add $150 a month for repairs and maintenance. Total monthly car expense, $950.
Groceries. The family do a lot of shopping at food warehouses, and are moderate coupon clippers. Monthly grocery bill: $600.
Clothing. The family shops at moderately priced department stores, mostly Kohl’s and JC Penny, but also a bit at Wal-Mart and even some thrift stores. Monthly average: $200.
Entertainment. Two or three dinners out, and maybe one movie are the family’s extent of obvious entertainment costs. Monthly average: $200.
Annual vacation budget. $3,000, or $250 per month.
401K contributions. Both spouses have a 401K plan at work, and each get a 50% employer match up to 6%. Though they’d like to contribute more, it’s hard to find the extra money with raising a family. They each go with the 6% contribution, hoping to increase it in the future. Monthly contribution: $375.
The kids college funds. Once again, though they’d like to save more, they’re limited to payroll deductions at $100 per month per child. Monthly total: $200.
Charitable contributions. They’d like to give more, but $100 per month is the best they can do right now.
Miscellaneous expenses and short-term savings. There are always significant home repairs, unexpected expenses, and furniture and appliances to be replaced. On top of that, there’s funding and maintaining short-term savings to have for emergencies. Estimate: $350.
Totals:
Payroll taxes, $1,000
Housing, $1,525
Health insurance/medical, $500
Car expense, $950
Groceries, $600
Clothing, $200
Entertainment, $200
Vacation, $250
401K contribution, $375
College fund, $200
Charity, $100
Miscellaneous expenses and short-term savings: $350
Total, $6250 per month, or $75,000.
That fits nicely within the family’s $75,000 annual income.
Being middle class is expensive!
If your household income is at least $75,000, you may be asking “what’s the big deal?” But here’s an interesting statistic; according to the U.S. Census Bureau, the median (50% above, 50% below) household income in the United States is $49,777. A little bit less than 32% of the households in the country earn at least $75,000.
What that means is that the average household in the U.S. cannot afford the stereotypical middle class lifestyle!
Remember that at the beginning, we excluded some costs that would complicate this family’s cost of living, like childcare, child support payments, and possible debts from car loans, credit cards, or even possibly payday loans that have been accumulated over the years.
Another significant factor we didn’t account for is geography. The living costs we used assume that the family lives in a moderately priced region of the country. If you live on the West Coast, in the Northeast, or in many large metropolitan areas in between, the cost of living is significantly higher. The $1,000 per month base house payment we used doesn’t exist in those areas.
Then, there’s the employment situation. We’ve assumed that both spouses are comfortably employed in salaried positions with full benefits. If you’re self-employed, not only will you have to pay the matching FICA taxes (7.65%) but there’d also be no employer subsidy on the family’s health insurance plan. The combination of the two would raise your cost of living by many thousands of dollars.
Being middle class is no longer truly about being in the middle. It’s about being somewhere above the middle—maybe well above it.
What are your thoughts about what it costs to be middle class? And, do you think that the middle class is shrinking?
***Photo courtesy of http://www.flickr.com/photos/billward/5792348338/sizes/s/in/photostream/
How to Lower Your Car Insurance Cost
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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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The following is a guest post. Enjoy!
Don’t accept your renewal quote
Can you afford more excess?
Do you need comprehensive insurance?
Remove European cover or breakdown cover if you don’t need it
How about you all? What ways have you been able to save money on car insurance in the past? When it comes time to renew your policy, do you search around for other quotes, or simply take the one given?
Share your experiences by commenting below!
***Photo courtesy of http://www.flickr.com/photos/beadmobile/3365854417/sizes/l/in/photostream/
The Pros and Cons of a Down Payment Assistance Program
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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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One of the most interesting and underutilized programs are local down payment assistance programs.
What is a Down Payment Assistance Program (DPA)?
Pros of Down Payment Assistance Programs
Cons of Down Payment Assistance Programs
A property that uses city funds (like a DPA) becomes a deed-restricted property. Many programs require that the unit remains owner-occupied, or it is no longer eligible for the second mortgage, and payments (or the entire loan) will become due immediately. So, rentals are out of the question.
Second, when you decide to sell the property, you may only be able to sell it to another qualified low to moderate-income buyer, and there may be a cap on how much you can sell the property for. Finally, if you are still living in the house after 30 years and haven’t begun paying the second mortgage at all, it could be due in full at maturity—and if you haven’t saved the money you would need to borrow on your home to fulfill that obligation!
Conclusion
That being said, that last sentence epitomizes my entire personal finance journey! If I can’t afford it with a 10% or 20% down payment, how do I justify getting an entire second mortgage because I wanted something nice and new? It is also the idea that the payments on this home are affordable, but your opportunities to build equity in this investment are limited, especially if resale is restricted to certain limits and only certain buyers.
Although I have decided not to consider a DPA, it can certainly make sense for many other buyers, especially those who might view their first purchase as somewhere they only want to live for a few years until they can sell the home for something larger or in a different area.
How much of a down payment did you place to purchase your home?
***Photo courtesy of http://www.flickr.com/photos/jollyuk/1989719848/sizes/l/in/photostream/
Doggy Vet Bills – A Real Life Example of Emergency Fund Financial Planning in Action
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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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In my opinion, one of the most awesome things about personal finance blogging is that you often get to hear and share real life personal stories of people putting in to action various financial techniques they have learned either through school or personal education.
Today, I wanted to share with you all one such story. This one involves emergency fund financial planning.
The Doggy Health Emergency Story and Costs
Over the past week, one of our two greyhounds (Charlie) experienced a string of episodes where he would throw up significant amounts of white foam and saliva over and over (up to 20 times in one night), often pushing him past the point of dehydration. In total, he lost about 7 pounds of water weight.
The first night a throwing up episode occurred, we were quite worried, but he did eventually stop around 3 AM. The next day, we took him in to the vet to get checked up. By the time they had totaled up the office visit fee, the subcutaneous fluids, Cerenia anti-nausea and famitodine stomach acid reduction injectable medications, and the ‘easy-on-the-stomach’ diet food he needed to eat for the next few days, the total cost for the visit was $250. In this visit, they treated the symptoms but still didn’t know what was going on.
For several days after the initial episode, Charlie seemed pretty healthy. However, he had not yet totally recovered the weight from the initial throwing up incident. We took him to see an internal medicine specialist to get an ultrasound with hopes of that shedding some more light on things. For this office visit and ultrasound, the total was $472.
On the 3rd night after the initial incident, he began to throw up again, this time without stopping. Since we were pretty concerned that his body had not yet recovered from the first episode, we took him in to the emergency vet to receive a similar treatment as before. The total for this visit was $221.
Next, in an effort to be able to treat Charlie at home if an throwing-up episode occurs again, we obtained some subcutaneous Cerenia (anti-nausea) medicine and fluids to keep at home. The total cost for this was $151.15.
Summing these values up, it equates to ~$1,100 over the course of one week.
Doggy Emergency Fund to the Rescue!
Undoubtedly, $1,100 in pure cash expense is a lot to pay for in a span of less than one pay period. In fact, with the personal finance landscape in the US being what it is, it’s likely that most people would simply have to pay for this expense (since most dogs don’t have insurance!) with their credit card and then get charged a minimum 10% interest rate on it until they paid it off.
Of course, this is a situation that I want to avoid at all costs. When we made the decision to adopt a second dog in June, in addition to our personal emergency funds of 6-9 months worth of living expenses, I stipulated that my girlfriend and I both needed to have a $1,000 cash emergency fund account set up to pay for large unexpected vet bills that tend to pop up frequently with greyhounds (this number was found by looking at her past vet bills and seeing the patterns that emerged).
To save for this periodically, I decided that I would give myself 10 months to build up the doggy emergency fund of $1,000. To make the savings fool-proof, I set up a monthly, recurring, automatic $100 transfer from my checking to savings account to be made directly after receiving each paycheck.
Since my girlfriend and I had already been saving up this doggy emergency fund money for several months when the week’s worth of vet bills hit, all we had to do to cover the credit card balances was to simply transfer money from our doggy savings account to our checking accounts. Boom! Done! No credit card debt incurred! In the coming months, we’ll continue contributing to our emergency funds and replace this money that was used.
Conclusions
To me, this whole experience really highlighted two key things:
- First, it was a great example of how effective of a tool an emergency fund is in one’s personal finances.
- By having an emergency fund (either in general or for your pets, or both), you are really able to maintain more precise navigation of where your ‘financial ship’ is headed and are not blown off course by large amounts of unexpected debt.
- Second, it highlights the importance of taking a critical look at your finances and spending patterns to determine what you need to allocate/save money for.
- In our case, we looked at past vet bills and determined that we would need to have a good amount of money on hand for health issues that come up.
- For other people, maybe their family car is old and beat up, and they have to spend a lot of money to keep it running. By reviewing their spending patterns, this would be identified, and then it would be important to either 1) change the car or 2) allocate money towards this priority.
How about you all? Do you have an emergency fund in place? Have you ever had to tap in to it?
Share your experiences by commenting below!
Is it Cheaper to Live on the Top or Bottom Floor of an Apartment Building?
For the past two and a half years, I’ve lived on the upper level of my two-floor condominium apartment building.
On a non-financial basis, it’s worked out very well for us so far.
- Being on the 2nd floor, we have a little more privacy on our balcony as well as from people walking by on the sidewalk outside not being able to see inside our living room.
- In addition, I feel like it’s a little more secure since it would be harder to break in to our windows being elevated off of the ground floor.
- The only half-way negative thing I can think about for living on the second floor has been that it is a little harder to carry in large objects and lots of groceries after big shopping trips.
However, the other day, I got to wondering whether or not living on the bottom level of our two-floor building would actually be less expensive from a financial standpoint than where we live now on the top floor. The purpose of this post will be to investigate an answer to this question. Let’s get started!
After thinking about this question for a few minutes, I hypothesized that there would be three primary factors that would influence the cost being different for living on different stories of an apartment building: market value of the dwelling (can be rolled up in terms of measurables as monthly rent or condo purchase price), air conditioning, and heating.
Rent/Condominium Purchase Prices and Moving Costs
In my personal experiences renting apartments over the past 4 years and also purchasing my current condominium, I’ve found that apartments on the ground level tend to be more desirable and higher-priced (especially in places with narrow stairways and a lack of an elevator). When I lived in a suburb of Philadelphia, the top floor apartment I had was about $50 per month less than the same unit below me. In addition, in my condo complex, units on the ground floor tend to sell much faster and are also more expensive in terms of listing price.
Of course, all of these experiences were in quiet suburbs or smaller cities, not in the middle of a 20 million person metropolis where street noise might make lower level apartments much cheaper and less desirable.
In trying to find some answers outside of my personal experiences as to how real estate prices and moving costs compare for different stories of the apartment building, I came across the following details:
- While I don’t remember encountering this during my moves to second-level apartments, I came across an article from Yahoo about someone saying that they had to pay the moving company a premium in order to move to an upper level unit because of the increased time and effort it would take.
- A Telegraph article from the UK reported that flat values can decrease by up to a whole 1/3 as you move from ground floor units to 4th floor units
From these findings, it seems to be that it is cheaper to live on the upper floor than the bottom floor as far as real estate prices and rent are concerned.
Air Conditioning During the Summer Months
The next point of comparison I wanted to investigate between top and bottom floors of an apartment building is the price of cooling the place during the hot summer months. Since most air conditioners these days run on electricity, we’ll measure this price in terms of electricity usage/cost.
Since 2008, I lived in a bottom floor apartment for 1.5 years, and then two top floor apartments for the remaining time. Although I don’t have exact numbers of my electricity bills prior to July 2010 when I moved in to a 2nd floor apartment, I remember that the electricity costs (for A/C cooling) were a lot lower for a ground floor apartment. Of course, this makes sense from a physical perspective, since density decreases as the average kinetic energy (temperature) of the air molecules increases, causing the hot air to rise to the upper floors in the summer.
In looking around the Internet to try to quantify this price difference, I was surprised to only find one report of actual numbers comparing electricity costs for A/C usage among comparable apartments on different floor levels. This report stated that the person paid an average of $84 per month when living on lower floors vs. $120 per month on the top floor. This represents an annual cost difference of $432.
Because of this evidence and other reports on general guidelines for cooling apartments, it seems that it is cheaper to keep a lower floor apartment air conditioned in the summer months than an upper floor unit.
In addition, I did find several useful statistics about average cooling and heating costs per year that one should plan for (we’ll use these in a little bit after we cover the heating topic):
- A Zillow report stated that people generally spend about $300 per year on air conditioning, mostly running their A/C from May-September.
- A DailyGreen article stated that the average US household spends $375 per year to keep their air conditioning running.
Heating During the Winter Months
As temperatures decrease further and further during the cold winter months, heating bills can become a very large financial liability for individual households. For this analysis, we’ll consider natural gas heating.
For me personally, I have always had natural gas powered forced air heating systems. In my current place, the heating (gas) bill is included in the monthly $214 HOA fee. Of this total amount, $100 is actual HOA fees, and the other $114 pays for sewer, water, trash pickup, and gas/heating. The same HOA and utility fee is paid by all units in our condo complex year-round, irregardless of what level the unit is on. Electricity (includes air conditioning/cooling) is paid separately directly to the power company.
From what I’ve found online, the generally accepted principle is that it is cheaper to heat an upper level apartment during the winter since, theoretically, the hot air from the apartment on the lower floor will rise up in to yours. This of course assumes that the insulation on the roof of your apartment is high quality and won’t leak too much heat.
If we apply this principle to my specific circumstance, we’re actually getting a bad deal with this since our upper floor apartment is more expensive to cool during the summer and the same price to heat during the winter! But, what can ya do right?!
A December 2011 Scientific American article reported that the average US household spends $732 per year to heat their home.
Conclusion – Is it Cheaper to Live on the Top or Bottom Floor?
From what we’ve seen in this investigation, the upper floor is cheaper in terms of rent/sales price and heating during the winter. We’ve also seen that it is cheaper to cool a lower level apartment during the summer.
So, which is cheaper?
Overall, I was nicely satisfied with the evidence for the difference in rents and real estate prices for apartments on different levels of a building. However, the heating and cooling cost differences were only based on generally-accepted guidelines, gut feelings, and personal experiences, not robust data-based studies. In addition, the evidence presented so far doesn’t answer the question of HOW MUCH you can save for heating and cooling by having a unit on a different level. But, when I sit down and think about it, I imagine that this is because these cost differences depend on so many factors (building construction, insulation, etc) that the data would either be 1) extremely hard to obtain or 2) not all that useful on a more global scale.
However, from the average US household heating and cooling cost data (includes all homes – not just apartments) presented in this post, one interesting conclusion might be provided. For example, we saw from the data that on average, it costs approximately two times as much to heat a house than it does to cool a house over the course of a year ($732 vs. $300-$375, respectively).
To me, this somewhat tells us that on average, it might be better to avoid increased heating costs. And, if we have to pay more for air conditioning in order to get lower heating/gas bills, then this combined with lower rent/purchase prices makes the upper floor apartment the overall cheaper alternative.
Of course, another thing I’ve learned from this investigation is that these cost differences probably aren’t as significant as finding a level of the apartment building on which you are most happy with the noise, walking up stairs, views, and other factors.
How about you all? Do you think it’s cheaper to live on the top or bottom floor of multi-unit/family apartment building? What factor would you expect to be most significant in the possible price differential?
Share your experiences by commenting below!