The Smartest Decision We Made to Build Wealth Rapidly

In order to build wealth rapidly, the smartest decision we made over the past year, was to live far below our means. But, what exactly does that mean? In the past few months, I’ve explained how we save money on groceries and on dining out, but neither of these come close to today’s topic in terms of the amount of money we are saving.

This post will detail how our choice of living has been, from a numbers perspective, the biggest factor when it comes to doubling our savings rate in 2016 and helping us build wealth rapidly.

Before I dive into the numbers, I’ll reiterate the importance of finding something to aim for. Doubling our savings rate hasn’t been an accidental byproduct, but a carefully crafted and conscious decision made by us
at the start of this year.

Lewis Carroll summed this concept up best when he wrote,

Alice: Which way should I go?
Cat: That depends on where you are going.
Alice: I don’t know.
Cat: Then it doesn’t matter which way you go.”

Determining where we wanted to go was the first step. The second step was finding ways to reduce our spend.

So the first question is:

How Much Should We Spend on Housing?

“Should” is a funny word, because it groups us into the remaining masses of the consumerist world we live in. “Should” represents sticking to the “norm”.

As you can tell, “should” is a dangerous word if you want to rapidly increase your net worth over time.

When it comes to the cost of renting, you’ll often hear the term, “Rent-burdened.” What this means is the family living in the rented house/condo/apartment is paying MORE than 30% of their income.

30% is a lot, so for any family to be paying more indicates rent is a burden on their budget. This also helps explain high income families facing financial trouble when they decide to purchase a home that is too expensive. The burden can be felt at any income level.

In Cook County, 52 percent of renter households are rent-burdened…versus 49 percent nationwide.” You can view the full report by clicking here.

As usual, Chicago, and the county we live in, Cook, is ABOVE the national average.

The Cost of OUR Housing

When my girlfriend and I were reviewing our options to find a new place to rent together, we considered a few factors. The first was location. We wanted to be close enough to work so that we could walk. The second factor was the place itself. What types of amenities did it offer? An in-unit washer/dryer? A balcony?

The third and final factor was the price.

If we used 30% as the maximum amount in our budget, then we should be spending ~$40,000/yr or about $3,300 per month. For Chicago, that’s not hard to do. Within a few blocks of me, I can find 117 results matching that price range at this specific moment.  If I search the same criteria across multiple platforms, I’m sure the number will rise to more than 200 available units.

After all, those homes are what we SHOULD be paying.

To take things a step further, I also surveyed close friends of mine. I found, based on their reported numbers, that 6 out of 10 close friends would be considered “rent-burdened.”

Many of my friends are paying such a level of rent because, you guessed it, that’s what everyone else is doing.

So, what % of our income do we pay for housing?

We pay less than 15%.

To add to this, we also signed our current lease for 2 years with the agreement that rent will NOT go up. Barring any unexpected income hiccups next year, I’m expecting our cost of living will dip closer to 12% in 2017.

We love our place. It is 700 sq ft with an in-unit washer and dryer, brand new appliances, and a balcony. We have all the amenities we need and want (except for a pool, but I find time to swim in Lake Michigan instead). We even have a gym in our building and 24 hour doormen.

If you live in a big city, you know the convenience to not have to be at your door when the postman comes with a delivery that needs to be signed.

To put things into perspective, our decision to live where we do now has fully funded my 401k, my IRA, AND my girlfriend’s IRA for 2015.*

Instead of paying for a 2nd bedroom that I would use 10% of the time as an office or a 2nd bathroom that would be utilized only in the mornings when we find ourselves getting ready at the same time, we’re instead making massive strides towards securing our financial freedom.

Would we enjoy the perks living in a place that we SHOULD be able to afford? Sure. However, we’re happier going against the grain to pursue our financial independence at an early age.

Our ability to crank the dials on the process to build wealth rapidly allows us to feel more secure in our future. Well worth it in our opinions!

Do you share the same philosophy on housing as we do? Do you prefer to buy a bigger house to build even more equity in real estate? Did you have major spending shifts occur in the last year to build wealth rapidly?

Master Distiller

*Here are my calculations: If we double our rent and put ourselves at 30%, where the majority of our neighbors are at, then we would have needed an extra $30,000 in income to pay for our rent. $30,000 would need to be taxed at ~30%, so we would only see $21,000 spent on our rent. Instead, that same $30,000 that would have gone towards rent, can fully fund $18,000 in a 401k, and another $11,000 split amongst two Traditional IRA’s.

40 comments… add one
  • Jon @ Be Net Worthy Aug 15, 2016, 6:16 am

    Matt, you guys took a great approach on your housing and it is paying off! I’m not being as aggressive on the housing side and have to admit we have a small McMansion – sorry to all the pf bloggers out there! We are not debt burdened, but certainly I would have had the house paid off completely by now if we had chose a smaller place. I also just re-financed the mortgage at 2 7/8 %, so that is going to save us over $20k here over the next several years. Well done on the housing!

    • Distilled Dollar Aug 16, 2016, 6:24 am

      Thanks Jon. We’re thrilled as our rent used to be materially higher when we lived apart.

      McMansion sounds great in my book, given you made a choice to live there vs another place. I think most PF bloggers would be upset if the house was purchased with no thought up front besides, “I’ll buy the biggest they say I can afford.”

  • Matt @ Optimize Your Life Aug 15, 2016, 8:21 am

    I am with you completely. It always strikes me as strange how much time people will spend clipping coupons or shopping around to save money,when you can save far far more by challenging the assumptions on housing costs. The biggest savings potentials are always in your biggest expenditures.

    • Distilled Dollar Aug 16, 2016, 6:26 am

      Well said. I also find it funny when people talk about making an extra 1 or 2% return on a $10,000 asset, but they ignore those big money saving opportunities that would equate to a 100% return compared with their investment.

  • Brad, Financial Coach Aug 15, 2016, 8:50 am

    Great post on an important topic.

    We downsized from a $1m+ waterfront home a few years ago to pay cash for a townhouse (about 1/2 the size) a few miles away… and we haven’t regretted the decision one bit!

    The old home wasn’t causing a financial burden for us, but to have SO MUCH of our income going to payments, and so much of our net worth wrapped up in personal residence equity, just didn’t make sense per the goals we had set as a family.

    Too many people have too much house. Smaller living space means lower utilities, lower taxes, easier to clean, cheaper to maintain and “fix” when needed, etc. We love the smaller living lifestyle!

    • Distilled Dollar Aug 16, 2016, 6:28 am

      100% agree – especially on the easier to clean aspect! We have two cats now (no kids) but they always make a mess of whatever we leave out. So, we typically spend 10-15 minutes each night tidying up. If we had a bigger place, I could see how things would get much, much messier.

      Congrats on making the move. I’m sure you saw a lot of push back from friends/family, but ultimately, you’re happier and wealthier for making that move.

  • FinanceSuperhero Aug 15, 2016, 10:10 am

    Your decision to go against the grain is really wise, Matt. Spending less than 25% on housing costs is a tremendous accomplishment. Our current mortgage payment puts us a shade over 20%, but that may dip down to about 17% in the next year.

    I was glad to see you mention the perils of the word “should.” I learned not to use that word in college. During one of my first lessons with my trombone professor, I decided to ask him how much I *should* be practicing each day. My thirty minute lesson quickly became a deeply philosophical discussion. At the time, I was quite annoyed, but looking back, I learned a lot from that conversation.

    • Distilled Dollar Aug 16, 2016, 6:32 am

      +1 for playing trombone! I played French Horn and trumpet back in the day. I wish I had been wise enough to ask that “should” question earlier!

  • EarlyRetirementNow Aug 15, 2016, 11:46 am

    Couldn’t agree more. Housing is the item where one can squeeze the budget very easily. That calculation is much more obvious when renting. Lots of people who buy hide their overconsumption, rationalizing it with “the home will appreciate” but a house is not an investment when you live in it yourself.

    • Distilled Dollar Aug 16, 2016, 6:34 am

      Agreed! I’ve seen this same stretch now that I’m introduced to more first time home buyers.

  • The Green Swan Aug 15, 2016, 12:14 pm

    Nice work, Matt!

    Not too many people take the time and effort to fully analyze the cost of their living, and the opportunity cost related to it. But making small sacrifices, it is incredible how much of a boost that gives your financial condition.

    We made a similar decision when we bought our home. We could have chosen to live closer to work and in nicer neighborhoods for 2 – 3x the price of the home we ultimately bought, which is a little bit further from work, but also in a better school district. Four years later we are still very happy with our decision.

    Thanks for the post!

    • Distilled Dollar Aug 16, 2016, 6:36 am

      I’m sold on the better school district. In the end, that might matter more than anything else.

      I’m glad you liked the post! I was a bit shocked when I read that initial research on being rent-burdened. The natural next step for me was sparking up excel and subtly polling my close friends!

  • [email protected] Smarter Decisions Aug 15, 2016, 5:06 pm

    It is so awesome that you realized this – “Instead of paying for a 2nd bedroom that I would use 10% of the time” – all that money for such a small use! You have a great handle on your goals and understand how much a poor housing decisions could affect your path to FI! Congrats to both of you! (This is coming from someone who lives in a small house on a nice street – near the school, when we could have bought in a new development and still had a big mortgage!)

    • Distilled Dollar Aug 16, 2016, 6:37 am

      Thanks Vicki. We’ve learned to love our small space as well. The only “real” issue is having one bathroom, but I’ve adjusted my schedule to waking up earlier (thanks to blogging) so we no longer get ready at the same time.

  • Apathy Ends Aug 15, 2016, 5:14 pm

    That is huge Matt, love how you approach these decisions and go against the grain to speed up your FI path. Smaller places are so much easier to heat and cool and you actually USE all the space you have.

    We downsized from our first house to our second, we did pay more since the house is brand new, but it is built to new energy codes we save about 150-200 a month in heating/cooling costs.

    our mortgage is about 18% of our income, well under the 30% – the guy doing our financing was surprised we weren’t spending more on a house.

    • Distilled Dollar Aug 16, 2016, 6:40 am

      Funny enough, there is a small corner of our place that isn’t being utilized, so I’ve been racking my head over how to utilize it. In a larger place, I would probably grow tired trying to figure out how to optimize the whole thing. 🙂

      I’m sure the guy doing your financing mentioned you could afford more…about a dozen times!

  • Chicago CPA Aug 15, 2016, 9:11 pm


    I’m a Chicago based CPA as well, and I’m sure my comment will be an outlier. I actually think you are still paying too much in rent. Especially if you still have student debt and are contemplating early financial independence. (Based on the figures you provided, I am guessing I pay $8K less than you in after-tax dollars). Whether you admit or not, you’re basically living in luxury!

    If you compare your rent to the 30% rule, of course you look great! However, perhaps this figure is misguided to begin with. The rent you are paying in Chicago is basically the same as every other young pro I know in Chicago, regardless of whether they are shooting for ER.

    • Distilled Dollar Aug 16, 2016, 6:12 am

      I need to meet your friends and find out about these deals!

      I would love to get your take on more of the details I offer up below. I’m curious to tap into more of your background as well, since paying less on rent is definitely something we are open to. It sounds like you’ve locked in a great rate and I’m hoping you can shed some more light on how you succeeded in doing so. 🙂

      The two of us are paying $1700/month, or $850/person. These numbers aren’t new since I detail our income in our net worth posts, but for ease of conversation I wanted to clarify the numbers here. Definitely a hefty price, but factor in neither of us spend $100/month on public transit like we used to when we lived in a less expensive area. From that standpoint we are basically paying $1700/month and saving $200/month on commuting costs (which was already very low thanks to public transit instead of cars).

      If you’re truly paying 8k less, then you’re at 12,400/year or ~1,000/month. Does that make sense? I did a quick search for $1,200/month while taking off the in-unit laundry filter (need to leave on the pets filter since we have two) and zero results popped up within about three miles.

      Are you living in Lincoln Park or Lakeview? Or South Loop? Or one of the NW neighborhoods like Logan Square?

      As for my friends, I noticed most of them started off paying around my level right out of college. Maybe my friends are fiscally irresponsible now as their income grows. It is not uncommon now to hear someone paying $1,500+ in rent by themselves. I also hang out with a lot of people involved in finance so my sample is probably skewed to begin with.

  • Chicago CPA Aug 16, 2016, 9:15 am

    Hi Matt,

    My gf and I are paying $950 in total per month. We’re on the northwest side of Chicago along one of the metra lines. To do this requires a little bit of sacrifice, meaning no central a/c (window unit) or in unit washer/dryer. Because we’re not in a ‘fancy’ area, other parts of our lifestyle are cheaper as well. The funny thing is that as our friends are getting married and buying houses, they are now moving closer to us, to suburbs like Glenview, Wilmette, Park Ridge, etc.

    You could easily get your rent to our level, but it would require a shift in mindset and assumptions. I’m not speaking to you specifically, but in my view, I think a lot of college grads feel some entitlement to live in the cities nicest neighborhoods, like LP, LV and RN (even if they shouldn’t based on their salary). When I was in Big Four, most of my colleagues were paying half their salary to do this, which seemed crazy to me!

    • Distilled Dollar Aug 17, 2016, 5:45 am

      Amazing! I actually planted the seed yesterday for my girlfriend and I to have a conversation on this topic. You’re 100% right that it would be a huge shift for us because we’ve grown accustomed to being able to walk to work and walk to and along the lake. I also enjoy doing much of my triathlon training along and in the lake, so I would likely need to join a local gym if we moved further away from the city (not necessarily a bad thing, of course).

      This reminds me that everything is relative. Many of our neighbors pay double or more for rent but then we’re almost paying double compared to your rent. Even after factoring in the commuting cost of ~$100/month, we’re still paying nearly 50% more each month.

      On the plus side, we’re still low relative to our income at 15%. I can’t even begin to imagine what 50% would feel like. I have a lot of colleagues myself who are in the 30-50% range and their attitude is “well, I spend most of my time there, so I want it to be nice.”

      • Miss Mazuma Aug 19, 2016, 7:02 pm

        You boys (and your ladies) should come join me in the Buena Park section of Uptown! I’ve lived here on and off for the past 10 years and can tell you (as a former Realtor) this pocket still has some of the best bargains in the city!! Close to the lake, bike path, and all forms of public transportation. Free street parking (no permits) and I can hear it in the wind every time the Cubs score a run. 🙂

        DD I would say your numbers and expectations are certainly skewed but that goes in part with the hood you are living in. For where you are, your numbers are definitely on the low side. Perception = Reality. 🙂 From where I am – $1700 is insane for a one bed. Then again, I happily live in my walk up 3rd floor studio and drive to work. We all have our standards and what we are and aren’t willing to pay for.. or sacrifice as is the case of my car. Most people just choose by neighborhood without giving the rest of their lifestyle a second thought. Good for you for doing the research! 😉

    • Frugal CPA Dec 3, 2016, 3:16 pm

      Another CPA here, although not Chicago-based. 🙂 We live in a HCOL area on East Coast, but by purchasing a house far below our means, we spend less than 5% of our gross wages on housing. Our neighborhood isn’t trendy and we don’t have the granite countertops or swanky amenities that many of my co-workers do – and we couldn’t be happier. Yes, I’m farther from some of my old favorite running trails, but I’m choosing to make new favorites.

      • Distilled Dollar Dec 5, 2016, 8:46 pm

        That sounds awesome! We’re in a similar spot now where we might reduce our total rent if we move a bit further away from everything. I might be in your shoes soon, looking for new running trails.

  • Nicholas Aug 19, 2016, 8:27 pm


    Great job at taking a pretty simple topic and making it interesting! It’s always interesting to see how much others are willing to give up in order to achieve their goals. Although saving an extra few hundred per month might be helpful in the long run, I think there comes a point where each person has to draw the line and decide how far they’re willing to cut.

    Also, it’s pretty interesting to see how rent and what you can get for it differs between locations. As for me, I’m going to stick with my $500/month 2 bedroom a little bit longer 🙂

  • ZJ Thorne Oct 1, 2016, 12:53 pm

    This is precisely why I choose to live with roommates for the time being. I pay 16.5% of my take-home pay on rent. My roommates all pay much higher percentages. My girlfriend is closer to 40%. High COL areas stink, but I’m jealous that my girlfriend does not share her space. It’s such a different quality of life.

    • Distilled Dollar Oct 1, 2016, 2:16 pm

      30-50% is common amongst my friends, but it is typically right around 30%. It is crazy to think how one decision has such a large impact on our finances.

      100% agree that high COL areas stink, but I tend to balance this out by thinking of the opportunities I have here in Chicago. I would have had my current career track had I been in a much smaller city. It is tough to say as the alternatives are, and will remain, unknown. Having read so many great personal finance bloggers, it looks like there a lot of great places to live around the world. Maybe I won’t need to endure so many Chicago winters in the future!

  • Dan Palmer Oct 23, 2016, 2:23 pm

    Fantastic point! Fantastic article. Am fortunate that housing is not expensive in my small Midwestern town, and am fortunate that my wife and I had the foresight of buying a house that was well within our means thanks to our mutual antipathy of 30yr mortgages. But yes, too many people settle for bigger because that’s what they’re ‘supposed to do’.

    • Distilled Dollar Oct 24, 2016, 8:17 am

      Thanks for the comment and glad you liked the article Dan. It can be scary how catching up with people leads to being in over our heads.

  • Savestacks Nov 1, 2016, 10:47 pm

    Great article, when my wife and I bought our house the bank pre approved us for 800k! We new we didn’t want to buy an expensive house and be house poor! Ended up buying a 460k house with 60k down. Right now we pay about 12% of income on the mortgage, not includeding any extra payments. Really glad we bought below our means! Thanks for the great article, have a good one!

    • Distilled Dollar Nov 6, 2016, 10:08 am

      Wow – that is inspiring. We hope to copy the same approach when we purchase a home.

  • Mr. Grumby Nov 5, 2016, 2:39 pm

    Great post! We sold our house last year during an advantageous seller’s market in Portland and moved to a new, centrally-located 670 sf apartment with appliances and a doorman. People threw every “should” in the world at us, but the math works. The rent payment is quite a bit higher than the mortgage was, but is still only about 13% of our gross, and we don’t have expenses and time constraints associated with home-ownership (cleaning gutters, painting, etc). Living close to work or public transportation can mean higher housing costs, but we found that was offset by savings in transportation, maintenance and repairs. Not to mention quality of life!
    It’s helpful to know that others are thinking creatively and questioning traditional advice.

  • Danielle Dec 7, 2016, 11:45 am

    Great job living in the smaller space. I must admit, I can’t live without our second bathroom. However, it is still well below our means at 20% of our income. I can’t imagine spending more than 30% of our income on housing! I don’t clip coupons, or do much bargain shopping because the amount of my time it takes to save a few dollars here and there isn’t worth it. I make sure I spend money on what what I need and do my due diligence to find a good price. The biggest areas I have been able to save money is housing and vehicles.

    • Distilled Dollar Dec 7, 2016, 6:36 pm

      Awesome! You sound like the future version of us since we’re PROBABLY going to be in a 2bed 2bath soon. 🙂

      We’re also on the same page with clipping coupons. Yes there’s a reward to the activity, but I remind myself, “what else can I be doing with my time right now?” Typically, I find something more productive to work on. BUT, I will search for coupons for big ticket items (like a great groupon deal for example).

  • Financial Samurai Feb 9, 2017, 10:00 am

    Nice job being featured in Yahoo! Whooo hooo!

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