The Hidden Risks of Tiny Living

n this episode of Less House More Moola, host Laura Lynch explores the intersection of tiny living and financial planning, particularly in the context of increasing climate risks and the changing landscape of homeownership. She discusses personal experiences with recent weather events, the implications of insurance costs, and how downsizing can mitigate various risks. The conversation emphasizes the importance of creating a gentler life through reduced financial burdens and increased resilience against unforeseen challenges.

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Transcript

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It takes a brave and independent mindset to go tiny. If you are trying to figure out your tiny pivot, this podcast is here to inspire and connect you with the other unconventional, gritty, inspirational people within this community. I am Laura Lynch, your tiny house friend and host. On this show, we are always going to come back to money because as a financial planner, this is the question I hear the most. How do I make this work for me financially? Well, that's my jam, so jump in, let's go. New episodes drop every Thursday. Hey everybody, Laura Lynch here. Thanks for joining episode 74 of Les House More Moola podcast. It is October, my favorite month. And yesterday it rained. It rained for two days here in Northern New Mexico. We've been reading the news reports following the rain down in Roswell, New Mexico. Many, many, many people had to be rescued from floodwaters there. There was loss of property, loss of life, really devastating in Roswell, really unexpected. They said that that area received one third of the annual rainfall in just two days, that it was a hundred year record rain. Two weeks before this, I was in Savannah. I was there for a conference. I was really quite obsessed with what was going on with Hurricane Milton because Hurricane Milton passed right over where our house was, our ex-house was right in the line of that hurricane. I feel honestly a little survivor's guilt about selling that house right before that hurricane passed over that was. probably the worst hurricane experience that I ever was part of or experienced even though I wasn't there in person this time. Hurricane Milton did more damage to that property than any of previous hurricanes that we had experienced while we lived there. We all know about Hurricane Milton and how devastating it was for Florida. It came from a different angle than usual. It came right across the Gulf of Mexico with all of that energy from those hot waters in the Gulf and just sort of barreled into the state. I've been watching my Facebook feed because I have so many Facebook friends there. even as they are getting their lights back on after a week, They just keep continuing to talk about how much damage there is. So even though maybe there weren't 15 feet surge storm surges like they were talking about on the radio constantly as Hurricane Milton was approaching, there still seems to be a ton of cleanup and really a bad forecast in terms of what's expected to happen from a homeowners insurance perspective in Florida. Two weeks prior to Hurricane Milton, I and Eric were driving furiously across the country from New Mexico to pack up the last of our things, our staged furniture, and do a couple of inspection items to finish up the sale of our Florida home, our American dream home, our big house. we hurricane Helene was approaching and we were headed that way. And so we had to drive across the country at what is 30 hours, according to Google maps, we had to make it there in two days so that we weren't coming across. the panhandle of Florida the morning that Hurricane Helene was expected to hit. Then we got there safely and in time and the hurricane came by and we had 60 mile an hour winds and we got all the things done and we packed things up. And then Helene of course went on to devastate North Carolina, parts of North Carolina that I spent a lot of time in, we have friends there in the Asheville area that lost everything and so much flood damage. They're very unexpected. Folks in North Carolina, of course, had no way to prepare for that because breaking dams and torrential rain flooding isn't something that you get a pre-warning for. in the same way that you get a pre-warning of a hurricane that's seven days out. Two weeks before Hurricane Helene, there was an unnamed storm that impacted my mother's area of coastal North Carolina, where flooding reached areas of that neighborhood that normally don't get reached by tidal flooding or some of the other storms that have come through that area. There isn't a conversation that I have with someone right now that isn't about weather risk. After Savannah, last week I went up to Baltimore area to spend time with my brother and my sister-in-law and my niece. And then on to Minneapolis, Minnesota, where I attended another financial planning conference. and talk to my host there about how Minneapolis is working on addressing weather risk there. One of the things that they are facing in Minneapolis is hail like they've never seen before. And of course, tornado risk. So there isn't a conversation that I have that doesn't discuss what is going on with the weather and climate change. And The timing of all of this was one of the major motivations that we had for leaving Florida. Frankly, it was the cost of that risk, the cost of insurance that really made Florida an unaffordable option for us. Since the sale of our home, I've been talking afterwards about Hurricane Milton with my realtor that represented us. And then there's been a lot of news following Helene about what's going to go on with the insurance market in Florida. And there's been discussion of maybe Florida becomes a place where only those who are wealthy enough to self-insure are able to live in Florida. Now, if you've had a mortgage and bought a home with a mortgage before, you know you have to have homeowners insurance. So self-insuring is only available for cash buyers, and then they themselves assume the risk of what might damage might occur to their home as opposed to an insurance company. And so you have to be pretty wealthy to buy a house in Florida and then self-insure against the risk of damage from all the many different. risks of damage that exists in Florida from flooding, hurricanes, wind, and all of the other storm related damages, falling trees, etc. So maybe Florida becomes a place where fewer and fewer people can afford to live. We have seen this play out right in California. Wildfire risk there has increased the cost of insurance and actually around the country. homeowners insurance has been increased by this collection of different risks that we all face in the natural disaster category. So if buying a regular home, a traditional home, an American dream home has become unaffordable due to the risk of climate related disasters, that is one of only many risks that we face in the whole spectrum of our lives and the modern world that we live in. How are we thinking about this major cost, this major investment of our homes related to the cost of the risk that that home may bear? And how are we thinking about that climate, weather related risk in the bigger picture of all the risks? that we experience in modern life. Obviously, it's not just climate risk that we face. There's health risks, there's career risks, there's life decision risks. We have a lot of risks. In fact, anytime we make a decision or wake up in the morning, we have a lot of risks in front of us. We get in a car, it's a risk. We go through, we travel, there's a risk. there's lots of risks that we face, but it seems like this weather climate risk is something that is looming really large in front of all of our eyes right now. And so I think it's useful to talk about how tiny living impacts our risks that we face. Tiny living. reduces some of the risks that we face or mitigates some risks or shifts some risk. Obviously a smaller home can cause less damage or can incur less damage. So if you have a smaller home without four different pool cages or expansive footprints, right? We have less to damage. So if we have less to damage, we have less belongings that can get damaged, lost, stolen, burned down. We have less to worry about in that insurance perspective. This is reflected in a lower cost of insurance. certainly ensuring less value of structure and belongings means that we have a lower cost of insurance. There's also the possibility, though perhaps debatable on the feasibility, but in terms of wildfire or hurricane risk, is the possibility of moving the home out of the way of the risk, which is certainly not a possibility when you're in a regular, fixed-in-place traditional home. when folks living in RVs, tiny homes, van life, all of these movable structures have the possibility of hitching up and getting out of the way of a risk that is coming when there's a lead time there. Also, I think it's worth talking about the fact that it is more likely that you can self-insure when you live in a tiny home of some sort. because that dollar amount that you have to have saved on the side to re create your housing is less. So this tiny home that I'm sitting in, we built back in 2017 for roughly $40,000. So if we were to have to rebuild this home today, certainly it would cost a lot more than it did back in 2017, but It is more possible because of lower cost of living that you could have emergency fund on the side to recreate your housing if in the event of something happened. If we had a wildfire here, for example, and our tiny home burned to the ground, we are more capable of having enough money on the side to rebuild our housing than if we had, you know, a $300,000 single family home. for example, so I think that that reduces the risk from a self-insurance perspective. We have more ability to have money on the side to roof ourselves again if our roof is destroyed. I think to have a balanced perspective, we have to understand that tiny living can also increase some risks. So whenever we're in a wheeled vehicle and traveling around, whether that's an RV or van life or tiny home, if we're on the interstates or roadways, we are increasing our risk of liability. The more time we spend traveling, the more our opportunity for accident and thereby liability goes up. Also, our home is at more risk. of being damaged when it's traveling around than when it is sitting in place. We certainly know of situations where folks in tiny living are forced to relocate due to policy regulation or ownership changes. Perhaps they're parked in a gray area on a friend's property and that friend makes a change. there are risks of parking that exists for tiny living that don't exist for single family homes. One of the questions I got when I spoke on tiny homes at the conference in Savannah was the risk of being in a small space with a partner and the likelihood of, you know, sort of that not being a tenable solution. And though I think that risk exists in any living space and isn't unique to tiny living, We certainly face the risk of being forced out of a tiny living space due to the growth of family through multi-generational expansion that could be either having children or needing to care for parents who perhaps aren't in a financial position to be independent or aren't in a health position to be independent. So when we bring more people into our household, we're likely to run out of space. So I think this is a risk that we have to acknowledge when choosing a tiny lifestyle. Also, folks in tiny living are far more likely to have to make a change to that due to perhaps career choices or perhaps they, know, van life can only take you for so many years before you really feel the need to settle down and have a more conventional life. So definitely whenever we take time out from the conventional path and do something unconventional, there is a possibility that that just doesn't work. And so there is a risk there. So we are obviously, we can feel it, right? It's tangible. We are in a time of unprecedented pace of change. I'm sure I've said this before on the podcast, that the pace of change has never been this fast and it will never be this slow again. We are seeing so much change, especially in the areas of risk, weather, climate, and labor, right? The labor market is definitely in transition. AI is having a significant impact. Some folks call this the fourth industrial revolution. So there's a lot of greater risk that we have a career transition that maybe leaves a gap. So generations ago, right, you got a job and you stayed at that company for 30 years. That just doesn't seem to happen anymore. so folks are at significantly greater risk of having times of unemployment, having a high cost of living when in that unemployment gap. including having a big mortgage and an unemployment gap can really add risk in terms of have you been able to set enough aside to cover that gap? What is the length of that gap gonna look like? What sort of costs might be incurred to retool yourself for the next career transition, education that might be needed, all of that. And so one of the big life risks that we face is interruptions in employment. And so I think that this is where tiny living can help us in terms of having that lower cost of living that allows us to have extra savings set aside for voluntary or involuntary career transitions. And I think that it is good to talk about the safety nets that simply don't exist. So there are a lot of life events that happen for which there are huge gaps in our safety nets. For example, when folks have children, there isn't good support from a child care perspective. We all see this all the time. We see couples that have to make the decision between putting the cost of putting children in daycare or the cost of not having that second income because one of the parents decides to stay home. And if you are a single parent, you certainly have a lot more tangible experience of this because there are even fewer options in terms of not having a second income that could opt out to stay home with the kids. So that lack of safety net really puts folks in stressful spots when it comes to having children. Health insurance is another safety net that has huge gaps. Certainly there is lots of different health insurance options and we have employer-based plans and we have private plans and we have the Affordable Care Act. And then once you reach 65, there is the possibility for most people of Medicare, but Anytime there's a major life transition like an employment gap or an early retirement or self-employment, there are gaps in the safety net. And oftentimes there is a lot more cost when you're in a gap. For example, when you leave your employer plan, if you've ever been lucky enough to have one to begin with. So this risk of the holes in the safety net of insurance have huge gaps and huge costs that come with stress and risk. Another safety net with huge gaps that we have is care in our later years. So the cost of help that 70 % of us will need in our later years is going up at 5%. So it is double the rate of regular inflation and saving enough to account. for this need for help in our later years is a major undertaking. So the risk of not having enough to pay for the help we need is a significant risk that we face. Of course, we can think of alternative ways of covering this need through building of community and family and relationships. But the likelihood is that we're all gonna need more care and more healthcare. due to longer lifespans and the ballooning of the healthcare services that are available to us to enhance our quality of life. So this is another significant hole that we have in the safety net around our healthcare. So for me and for Eric and I, these risks, these gaps in the safety net, these life decisions that created more risk. The risk of what was going on in weather changes really started to become big and important for us. And so our vision is to create a gentler life, a more balanced life, one where we spend less time stressed about all the risks and unknowns. I'm a pretty organized and on top of that person, but there's just a lot to be organized and on top of. And I would like to have less to be organized and on top of. I would like my life to be gentler. And one of the ways that we worked towards a more gentle life, reducing the anxiety and the feelings of scarcity that seem to be increasing with complexity and risk in the world that we live in was to downsize the roof, to downsize the cost of living, to get out from underneath the mortgage that required that we hold on to every security thread of an employer that wasn't so secure when you have one person who can end your source of income. And so, By reducing our debt obligations, getting rid of the mortgage, getting rid of all debt, and increasing our personal safety net by selling our American dream home and thinking about building community through our chosen place to live and our connections within the tiny community. We feel that we have reduced the number of risks that we must address. We have reduced the possibility of damage by having a smaller roof and reducing our possessions. We have reduced the threat of theft. We have reduced the threat of climate change by getting out of an area that is clearly at the ground zero for changes in weather patterns. we have chosen to live in a place that certainly is not risk free. We have risk of wildfire here, but in the event that that were to occur, like I said earlier, I feel like that we have enough safety net that we could recreate our housing because our housing isn't as expensive as other types of housing, namely the single family residence. And so I just think that this risk piece is so timely in terms of folks that are considering tiny living because understanding the risk of the American dream home and pursuing the American dream path with all of the obligations that are there and all of the ways that we leverage ourselves in order to accomplish that the amount of debt that we take on in order to have the$430,000 average home and the cars in the garage and the family size and the career path. We may think that it is safe because it's what everybody else is doing, but when we really dig in and have some life experiences, we learn that there are lots of risks associated with that path. And so if you like me are thinking about the risks that you're facing in the world and it makes you uncomfortable and you would rather have a life that is gentler and you have less to worry about, then I would definitely encourage you to consider the risk burden of the traditional American dream path versus the risk burden of a alternative path. of reducing the amount of stuff that you're responsible for, reducing the property size that you're responsible for, making sure that you do create a safety net for yourself for employment gaps, for health insurance gaps. And the way often to do this is by having a lower cost of living. So. I told you at the beginning of this podcast, my personal story about all of the weather disasters that have touched me personally in the last two months. And I think it is all of us that are talking about what is the risk of the place that we live? What is the risk that we're facing in the home that we live in? What is the risk that we are facing in the career path that we're in? What will we do about health insurance if something were to happen to our health insurance, if we're lucky enough to have it? What are we doing about our future? How are we creating resilience and an ability to take care of ourselves? And so I really am of the opinion. that tiny living is one way that we can create more resilience, more safety net and less risk in our lives. So if you have questions about this or wanna talk about your personal risk profile, happy to have a consult or chat with you. Just go to the tiny house adviser and click the book a call button. We can certainly talk about ways that you would like to reduce your risk by having less that you're responsible for. Thanks so much for indulging me in this personal exploration of risk and for thinking about this in a critical way. And I look forward to our guest coming up next week and make sure that if this is a valuable podcast for you, that you are taking the moment to subscribe. And if this was helpful, a review would be also great for others to find the podcast. Hey. Thank you for taking the time to listen to Less House More Moolah. I have another free resource on my website for you, the Unconventional Values Quiz. In just two minutes, you can pinpoint your style of freedom seeker, security guardian, adventure enthusiast, or community builder. Check it out at thetinyhouseadvisor.com. one more thing, podcasts don't have algorithms like social media does. They only grow by word of mouth. and reviews. If this podcast is helpful to you, would you please post a review on your podcast app and tell a friend who is trying to live a values-based life? It would totally make my day. Please see the show notes for important disclosure regarding the tiny house advisor LLC and this episode.