For many years it was thought that buying real estate was the best way for an ordinary working family to build up their wealth. It is too simplistic to say that people 30 or 40 years ago bought real estate which is now worth many times more than their purchase price. The best way to look at home ownership is to look at what percentage of their income at the time was needed to fund the purchase and the ongoing monthly mortgage costs. Having said that owning a home means no rent. The bottom line is the calculation on owning real estate involves more than simple figures on a piece of paper.
In recent years the recession has called into question whether it is worth taking a risk with investing in real estate, perhaps being overly optimistic on buying something that it is difficult to afford. Recessions occur periodically but in general families can expect the value of their properties to grow. It is a medium to long term exercise to grow an asset and in the situation when many people approaching retirement have such limited funds set aside that asset growth may be needed to provide a comfortable retirement.
Demands on Your Pay Check
The problem that many of the younger working generations face these days is they are struggling to meet their current financial commitments and therefore find it difficult to save the necessary deposit. Those starting out on a career find so many demands on their pay check. Student loans are an obvious problem and graduates who used a credit card to fund their student lifestyle often have expensive card balances to handle. Even being able to pay the monthly minimum that is required stretches finances. If this is your problem then a word of advice; get a cheaper personal loan at a cheaper rate of interest, get rid of that balance by using the urgent loan to pay it off and only use the card in the future when you can afford to pay the month end balance in full.
The point is that you cannot spend your time balancing your debts and save the money you need to get a deposit for real estate. Equally you will struggle to invest for the future anyway and certainly not be able to get the money together to have an emergency fund unless you understand financial management and have the self-discipline to follow a budget.
Those who leave home for a new city to start their careers face the prospect of finding somewhere to live; it will cost money even if it is shared accommodation. Perhaps you are luckier? If you can live at home and your parents understand that you are saving for your own place then your monthly expenditure may be far less than your friends who have significant rent to pay.
Living at Home
In the USA today it seems that an increasing number of people, even up to the age of 35, are living at home rather than moving out. The important thing is that if you have the chance to live at home that you use your money wisely; don’t spend everything you earn on things you don’t need. Devise a saving strategy with a clear idea of what you are aiming for financially.
No one teaches financial management at school and unfortunately some people learn the hard way. Investing in general is an alien concept on those in their 20s, even their 30s because they often have a problem identifying spare money that they can use. Alternatively they think that if they have a specific amount in the bank then they can spend it all before the next pay check comes in.
Don’t fool yourself into thinking that there is no point in saving because with interest rates so low there is no real growth available. You need to look beyond the very short term. Once you decide to live by a sensible budget you can expect to have a surplus to use for a few things that will potentially help your financial future:
- Saving towards a deposit for real estate.
- Accumulating an emergency fund, ideally a minimum of three months regular expenditure
- Investing so that you have the chance of building up a retirement fund that will provide for comfortable retirement
In many ways these things are interlinked. Unless you understand the importance of planning for the future you have little chance of owning real estate and ultimately building up the assets to provide a comfortable future.Like What You See? Share the Story!