How housing can affect your ability to build wealth

One of the vehement ways people can flaunt their wealth is through their homes. Home is not only just an abode for shelter and comfort, but also plays a pivotal role in mending one's mindset and even building wealth.

In their book, "The Next Millionaire Next Door: Enduring Strategies for Building Wealth," famous American business theorist Thomas J Stanley and his daughter Sarah Stanley Fallaw, PhD have said that a multitude of factors go into building wealth, but perhaps none play as big a role as where one chooses to live.

Sarah Stanley Fallaw, who is the director of research for the Affluent Market Institute, surveyed more than 600 millionaires in America while working on the book.

"The key to wealth building is to live in a home that one can easily afford," she wrote, building upon research from Thomas J Stanley; in his book "Stop Acting Rich," Thomas J Stanley said one's home or neighborhood is their greatest detriment to building wealth.

"If you live in a pricey home and neighborhood, you will act and buy like your neighbors. The more affluent the neighborhood, the more its residents spend on almost every conceivable product and service," he wrote.

However,  it is not just neighborly influences that can affect one's overall wealth — the price of the home  relative to their income also affects the ability to accumulate wealth over time, Stanley Fallaw remarked.

Should one plan to make progress on building wealth, they have to keep the  housing costs low.

Most of the millionaires Sarah Stanley Fallaw studied had never purchased a home that costed more than triple the amount of their annual income. The median home value for millionaires in her study was $850,000 - 3.4 times their current income, with a median original purchase price of $465,000.

Legendary billionaire investor Warren Buffett is an example to look upon on this regard - Buffett lives in a modest house worth 0.001% of his total wealth.

The succinct defination of an affordable home depends on one's salary, age, and where they live in.

Experts put the standard measure of housing affordability as 30% of one's  pretax income.

In an article in the Business Insider, certified financial planner BuLauren Lyons Cole,  suggested looking for a place that costs 25% or less of one's after-tax income and funneling the cash saved toward retirement accounts - if one really wanted to make progress on building wealth.

"Keeping housing costs low is smart, no matter how much money you have," she wrote.

"The best financial move you can make is to literally move to a less expensive home."

Finding a house without breaking budget is also dependents on the timing of the purchase.

Stanley Fallaw added that when buying a home, one should not only consider the cost of living, but how they measure well-being within the city, community, and neighborhood.

"We still argue that your more immediate community - school district, neighborhood, and town is more important when it comes to your personal happiness," she wrote.

Trading the size of the home for the conviniance of commute also plays an important rolse in saving money for future investments.