Hey TYS readers, this is a guest post written by a personal finance blogger. Since many of you have to decide whether to rent or own a home now or in the near future, let this post encourage you to think about what’s the best option for you.
Housing is a fundamental expense, representing a substantial budget entry for most families. Whether you rent a house or apartment, or own residential property, a monthly lease or mortgage payment is probably among your most costly recurring expenses. And securing an address is just the beginning – housing costs also include insurance premiums, utility bills and other household expenses.
Although both forms of housing carry costs, there are substantial differences between home ownership and leasing residential property from another owner. It is up to each individual to weigh the benefits and shortfalls of the two approaches, factoring-in personal preferences, economic resources, and other financial considerations.
As you evaluate residential options, it helps to answer question about your lifestyle preferences and financial resources. How long do you plan to stay at your address? Are your credit rating and income level sufficient to secure a mortgage? Should you continue saving for a larger down payment, or buy a less expensive home today? Does your job call for frequent travel or relocation? Answers to these and other important questions help you work out the best possible living arrangement.
Advantages of Residential Rental
Home ownership is almost always held-out as a universally desirable scenario every resident should strive toward. But is it right for everyone? Before committing to the notion you need to buy a home, account for the following advantages of staying a renter.
Short-Term Commitment – If you are a person who quickly grows tired of an unchanged environment, renting from month to month gives you a ready out, should your tastes change. Home ownership, on the other hand, pays-off over several years. If you are prone to frequent moves, renting is an attractive option. When weighing the pros and cons of various residential alternatives, it is also important to consider the circumstances surrounding your employment. Does your job mobility increase if you are willing to move on short notice? How deep are your roots in the community? Does frequent travel make it hard for you to keep up with household maintenance and upkeep? Each of these concerns has an impact on your best approach to housing.
Lower Costs – A residential lease outlines a monthly commitment, designating landlord and tenant responsibilities. With the framework of each agreement, the parties decide who’ll pay for utilities, parking, and other household costs. Once established, your financial responsibilities as a renter are clear. Unforeseen, home-related expenses are rare for renters, making it easier to budget and plan for spending. And since repairs, upgrades and home maintenance are typically funded by the building owner, your monthly costs may be lower than those of a home owner.
Benefits of Home Ownership
Hands-off real estate rental has its advantages, but owning a home also carries myriad benefits. Consider the following gains, as you evaluate the particulars of a home purchase versus lease.
Less Red Tape – Staying atop tenant rights and responsibilities keeps you protected, in the event of a problem, but the effort may be more than you bargained for. If you’d prefer to make your own residential rules, without interference from a middle-man, home ownership gives you more freedom to control your own destiny.
More Privacy – Despite rules governing the use of rented property and required notice of entry by landlords, living in another person’s property does not afford the same level of privacy enjoyed by home owners. Not only can you modify your own property, adding privacy to its physical layout, but owning your home also eliminates unexpected visits from landlords, contractors and other uninvited guests.
Home Equity – Home ownership puts a roof over your head, but it is also an important piece of your financial outlook. Investing in a home encourages your money to grow, as property values rise, and furnishes a “savings account” in which to safely hold your resources. As an owner, monthly payments work to boost your own financial security, instead of building equity for a landlord.
Ties to the Community – Your home is one of the most substantial investments you’ll make in a lifetime, so ownership typically ties you to your community for an extended period of time. As your investment grows, so do relationships with neighbors, educators and other local personalities. Ownership fosters kinship and grows roots a short-term renter does not cultivate.
Tax Advantages – Depending upon where you live and the circumstances surrounding your home purchase, owning property may hold tax benefits. Interest payments, for example, sometime qualify as a cost of living expense you can claim to lower your tax burden. Each case should be evaluated by a professional, familiar with prevailing tax laws.
Owning a home represents an important step for some buyers, but it isn’t the best approach for everyone. In many cases, renting is a better lifestyle match, giving tenants greater flexibility. As you weigh housing options, consider costs, personal preferences, employment obligations, market conditions and other factors, helping you find residential comfort and financial security.
9 Reasons Young Adults Are Insane Not To Invest In The Stock Market
Nearly 80% of millennials are not invested in the stock market. That’s scary! And it means a world of financial regret is on the horizon.
That statistic comes from a 2016 Harris poll which surveyed 500 American young adults (ages 18 to 34) and found the main reasons why they don’t own stock is:
- 40% don’t feel they have enough money to invest
- 34% don’t feel educated about it to know how
- 13% said student debt was the reason they haven’t invested
On one hand, some of these people have a point.
For example, it’s impossible to invest when you have close to $0 in your bank account after bills at the end of the month. And it goes against logic to expect someone to invest when they don’t know how to in the first place.
But I see some excuses at the bottom of this.
For the millennials who say they don’t have enough money, I’d ask them, “What have you done to solve this problem?”
They need to pick up another job, work on the weekend, stop wasting money on clothes and eating out, and save their money so they can invest.
Being uneducated about investing can only be an excuse for so long, too. Start educating yourself with a tool called the internet. It’s free!
And student debt is a big money sucker, but again—make more money, save more, and spend less so you can afford to both pay down student debt and invest in the stock market.
What I’m really advising is for these young adults to stop being soft and start hustling for their future so they can invest.
People miss out big time if they don’t own stocks. Here’s why.
9 Reasons To Invest In The Stock Market
Although many of these benefits can come from investing in the stock market in general, I’m specifically referring to investing in low-cost index funds that mimic the S&P 500, for example.
1) History shows you’re going to make life-changing money.
I don’t throw around the phrase “make life-changing money” lightly. It’s 100% true.
Investing in an S&P 500 Index fund, where you buy a tiny ownership of America’s top 500 public companies (give or take), is a great deal for your future.
If you invest in the stock market in your early twenties, there’s often a jackpot at the end of the tunnel. It’s literally like winning the lottery because you’ll end up with millions if you invest your money wisely.
Look at the graph below to see just the growth from 1980 until now. Better news is the graph remains pretty constant on average if you go back 100 years from now—up and to the right.
It’s no wonder Warren Buffett said this,
By periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals.
If you don’t have faith in putting your money in the hands of the best public companies in America, who are you going to trust with your money?
Where can you find a better option that history backs up?
Exactly, that’s my point.
P.S. I’m not your financial adviser, but look at the graph one more time and make the only sound conclusion! History often repeats itself.
2) No active work is required to profit big.
Like the video above explains, when you set up automatic contributions (through your employer or own brokerage account) then all you have to do is sit back and let your index fund do the work.
How reassuring is that!? Maybe the greatest quality of investing in the stock market is it’s 100% hands off and doesn’t need your time to produce wealth.
It’s get even better when you do a simple comparison of all the time that’s required to build wealth in other areas.
Real estate: Renting out real estate is a pain in the butt if you’re renters aren’t angels (news flash: most people aren’t angels). You can expect property damage, late payments, missed payments, broken rules, and other nightmares that will really second guess your decision to be a landlord.
And even owning property is a headache because of the crazy expensive closing costs, taxes, property fees, HOA fees, and not to mention the monthly maintenance when the sink or shower breaks. It’s never fun to be nickled and dimed to death, which is a usually a regular occurrence in real estate.
Owning a business: If you’re not willing to be obsessed and let your personal desires die for the good of the company, your company isn’t going to generate significant profits compared to the hundreds of thousands and millions of dollars that investing in the market can.
You can work 80 to 100 hour weeks to build your company and hope it brings you wealth. Or invest in companies like Facebook and Amazon where other people are putting in insane work weeks to churn shareholders like you a profit while you relax on the weekend, and take steps toward financial freedom.
Working as an employee: The problem with working as an employee is you’re going to have to do some serious corporate ladder climbing to get salary raises and generate some kind of wealth. Even then, odds are you’re not getting a 7% to 10% salary increase every year like the stock market provides on average.
The stock market is the most reliable avenue towards wealth.
3) Incredibly higher rate of return than real estate.
You want to put your money where it can grow and produce more money for you, right? Then go with the stock market. And, don’t buy a home!
According to James Altucher, the commonly shared belief that buying a home is an investment is all too wrong. He points out that from 1890 to 2004, housing returned 0.4% per year. Yikes that’s criminal!
The list of reasons for a house’s poor return include all of the above like upfront closing costs, title insurance, moving costs. And then ongoing expenses like home maintenance when something breaks, property taxes, and the inability to easily move for a better paying job.
If you own stocks instead, you can kiss all of those annoyances goodbye. And not to mention, most importantly, come home with an average return on investment of 7% to 10% if you buy a S&P 500 Index fund.
4) Investing into index funds protects your money against inflation.
Inflation is an ugly beast. It robs you of your hard-earned money, well the true worth and purchasing power of that money, over time. And the worst part is it’s unstoppable, in a sense.
For example, if you keep your money as cash then it’s unstoppable and your dollars will always be worth less as the years pile up.
But there’s a solution. Can you guess the hero of the story?
Investing in the stock market, specifically a S&P 500 Index fund, protects your money from inflation eating away at it.
Reason being is the S&P 500 beats inflation the majority of the time and these types of assets are immune to inflation.
Plus, many companies can pass on the costs to their customers. So if you own shares of these companies, then you’ll get the profits as an investor (even if you take a small hit as a consumer).
This is just another example of why it pays to be an investor and not a consumer.
5) Buying stock is a liquid investment you can sell at any moment.
Run into a tight squeeze where you need immediate money?
Or do you ignore the sound advice to build an emergency savings fund and it bites you in the butt as your car breaks down or you lose your job?
While it’s never a good idea to sell an asset early and get in your own way of bringing in more profits, the fact that stocks are liquid investments can be a life-saver for some.
At any moment of any day, I can sell shares of my individual stocks or index fund and get cash in my checking account as soon as the transfer completes—usually two to three days.
The opposite is true with real estate and other types of investments.
Once that money is taken out of your bank account for a down payment or mortgage payment, then you have no chance of getting that money back on your real estate investment property in the immediate future.
Instead of selling your investment immediately and receiving the money in two to three days with stocks, you may have to wait two to three years to sell your asset if it’s real estate.
Liquid assets like stocks are even more valuable given the quality that you can sell them at any time.
6) Easy to diversity where your money is invested.
Assuming your name isn’t Richie Rich, the odds of you owning 25 different startup companies or 17 penthouse properties across the globe are slim to none.
Though you can own a sliver of 500 different companies or even thousands if you buy index funds listed in the stock market. For example, you can buy a car, technology, food, retail, shoe, farm product, defense, and more companies than you can possibly remember to stay diverse.
Reason I bring that up is diversity is key for the average investor who is scared of losing all of their money or loses sleep when their investments are volatile.
A well-diversified investment portfolio protects against volatility and too much risk, which is hard to come by in other asset types.
7) Get taxed lower for long-term capital gains.
Investing in the stock market doesn’t mean the taxes on your returns completely go away. (Wouldn’t that be a blessing?)
But the taxes you pay on long-term capital gains (stocks you own for longer than 12 months) are significantly decreased compared to getting taxed on regular income.
Add this to the list of reasons it’s in your best interest to invest. If the government incentivizes investing with these tax policies and you still don’t do it, something is wrong with you.
Just don’t buy and sell your stock earlier than a year of holding it or else you’ll be taxed higher since it’d be a short-term capital gains tax (any stock sold before you’ve had it for at least 12 months).
Oh, that’s not it. If your investments lose money, you can also lower your tax bill using those losses. The goal of investing is not to lose money, but if it happens then reducing your tax bill is a decent compromise.
A wealth growing vehicle that also reduces my taxes is a slam dunk investment. This opportunity is yours for the taking as well.
8) It’s the only way to own a percentage of the products and services you regularly buy.
Eat at McDonald’s every day (like my dad does)? You can own a piece of them buy buying MCD.
Are you a big texter and talker on the phone? You can buy shares in Verizon (VZ).
Always enjoy a nice Disney movie to take you back to your childhood? Buy shares in ticker symbol DIS.
The ability to purchases ownership of a company you use all the time is another thing investing in stocks has going for it.
Now would I put all of my money in only products or services I buy? No, but it is a nice mental exercise to purchase ownership of a company that you use all of the time.
Because, in a way, you’re kind of buying from yourself and profiting from yourself. That’s legit!
9) It’s easy to get your feet wet with a small amount of money.
Want to be an angel investor to invest in a hot new startup company? Can’t happen unless you have an annual income of over $200,000 and a net worth of $1 million. Poor people not invited.
Want to invest in Grant Cardone’s real estate fund? Sorry, tough luck. You also need to be an accredited investor.
Want to buy your own multi-family real estate property and rent it out? Good luck collecting that $100,000 down payment to secure the property on top of the mortgage payments every month.
The system blocks out the little investors who can’t make any moves to grow their wealth.
However, it’s easy to start small when buying stocks.
You don’t need to be an accredited investor to invest in companies like Facebook, Amazon, Netflix, and other giant companies like GE.
So if you only have $600 to invest, perfect. Buy $600 worth of shares into a Vanguard index fund and slowly increase your position over time by buying more shares going forward.
Heck there are even new apps out there that will automatically help you invest spare change from purchases like Acorns.
Where buying other assets like real estate and startup investing limit everyone but the rich from participating, anyone can get started investing with as little as a $100 give or take.
And for any parents out there, it’s wise to put your kid’s birthday money into an index fund to get them off on the right start. A little money invested now can likely snowball into millions.
You Reap What You Sow
Two different financial realities await you.
The good news is you’re in control of your financial future. You get to decide the plot line.
If you desire to retire early, have millions in the bank to spend during your golden years, and live a comfortable retirement with your family, all you need to do is start investing.
The bad news is you’re also in control. Meaning you can make the wrong money decisions, not invest in the stock market, and be left with the staggering consequences.
Retirement isn’t fun if you have no money to afford to do anything entertaining. Then post-work life becomes the biggest drag of your life. Some people stop living to such a degree that they wish for death.
So from one young adult to another, make the right choice.
Have a long-term view about life. Buy some shares in a S&P 500 Index fund. And get the financial markets working for your money, not against your money.
Then you’ll give yourself a great opportunity for a happy ending: reaching financial freedom.
Avoid Bad Credit With These 5 Action Steps
Everyone starts out their financial lives with a clean slate, but over time you can accumulate bad credit that affects your future finances, loans, and stress.
Now that credit cards are so readily available, people are more likely to acquire bad credit than ever before. Let’s be clear, it’s not the credit cards fault people go into debt and build bad credit, it’s the people’s.
Though if you already find yourself saddled with bad credit, there are services that can help you with this including fixmy.credit.
And if you still have a clean financial record or are committed to rebuild one, here are five of the best ways to avoid bad credit.
5 Ways To Avoid Bad Credit
1) Pay your bills on time
This first one couldn’t be more obvious when talking credit score. As you might have already guessed, paying your bills on time every month is the number one thing you can do from preventing any damages to your credit record.
This can be particularly damaging if you miss payments by 30 days or more, so keeping on top of this task should be one of your main priorities.
Remember, even small overdue charges can have a negative impact. Always bear this in mind before making new purchases and receiving a bill.
2) Always start with credit-impacting bills
If you’re in one of those month where it seems everything financially that could go wrong does, you may not have enough money to pay all of your bills. In this situation it always helps to know which bills are the ones which can directly affect your credit score straight away.
That is not to say that you should entirely ignore the other bills, but you can prioritize the crucial bills—credit card, mortgage, loans etc.— to start off with.
Then do whatever you can (save more, spend less, eat peanut butter and jelly for a week) to pay off the bills you couldn’t the month before.
3) Avoid taking on unnecessary debt
As we mentioned at the start, more and more people are taking on debt with these days in order to finance their lifestyles (aka “Keeping up with the Joneses”). But debt doesn’t go away on its own, it needs to be properly managed and paid for.
If you have too much debt which is spread around all over the place, you are much more likely to start missing payments because you don’t have enough money to pay them or you forget about them which will lead you getting into bigger problems.
And your credit score is both influenced by the level of debt that you have overall and also your monthly credit card balance in comparison to your credit limit. Keep that monthly balance as low as you reasonably can which should open up extra savings to put toward debt.
4) Practice managing your money
People manage money in different ways, but you want to make sure you avoid getting in over your head as much as possible.
So, before you decide to take on any new expenses, make sure you stop to think how this could affect you.
You will get the fullest picture of this by creating a monthly budget in which you weigh up your monthly salary versus your expenses. Identify what is essential and nonessential so you know what can be cut if you need to.
5) Save for unexpected emergencies
Though bank balances aren’t factored into your credit score, having some reserves of cash put aside can ensure that you are in a position to deal with any negative financial events which may come your way.
After all, you never know when a financial emergency could put your current lifestyle under threat, so always being properly prepared is certainly the best policy to maintain. And having an emergency account to deploy cash protects you from going deeper into debt if that’s your reality.
Choose Good Credit
Avoiding bad credit is a good financial practice throughout your entire life, so use these five methods as a way to achieve some financial confidence.
Then you can rest easier at night knowing at least your finances are in order, even if the rest of your world is not.
And please remember, every financial decision you make from here on out (and really the day you received your first credit card, but we can’t go back in time) pushes you towards good credit or bad credit.
Paying your bills on time, not taking on significant and unnecessary debt, keeping a budget, and saving for emergencies is how you gift yourself a high credit score. That causes lenders like banks and businesses to want to lend to you and give you a friendlier loan and interest rate because you’re not a high-risk applicant.
Not only are you rewarded with receiving the loan then, if it’s a big purchase like a house or car then the interest rate will often save you thousands of dollars. Winning!
However, making credit card or bill mistakes results in bad credit, lender’s less likely to lend to you, and if they do it’s at a much higher cost. The cards are stacked against you if you continue to build bad credit. And, in most cases, it’s no one’s fault but yours.
So help yourself by moving towards good credit. The future you will be extremely appreciative, and be in a much better off financial place.
This article was written by an outside contributor.
Do This To Ensure You Become A Stock Market Millionaire
Wouldn’t it be cool to be not just a millionaire, but be a stock market millionaire? That’s way sweeter than inheriting millions or winning the lottery.
Because the status of stock market millionaire has 3 main advantages below the surface.
For one, you get the pride that both your hard work learning how to invest and your patience paid off extremely well. Inheriting money comes nowhere close to the high feeling of earning your own money.
Making your own lot builds confidence in yourself in all aspects of life going forward.
Second, how life changing would it be to have a million dollars to your name? Imagine the increase in living conditions for the loved ones around you and yourself if you pulled this off.
Just paying off your cars, education, and house in full would be unreal, and your overall financial stress would almost vanish.
So there’s no question investing in the stock market can change your life.
And third, becoming a stock market millionaire doesn’t mean you’re maxed out on making money because you have to save some for the other fish in the sea. It’s the opposite!
The amount of money you can make is unlimited, which leads to my point. You can take what you’ve learned to earn your first $1,000,000, and use that financial knowledge to go make yourself $2, then $5, and then $10 million in the future.
See what I mean? That’s why no one disputes the saying “the rich get richer” because it’s spot on.
Liking what you’re reading? Nothing is stopping you from achieving this reality.
Here’s the simple roadmap to become a stock market millionaire.
Where To Invest Your Money
If you’re familiar with my money talks, you already know I’m a big fan of investing in the S&P 500 Index.
For new audiences: In my book Freedom Mindset, I recommend every beginning investor puts their money into a S&P 500 Index fund. And I’m making that same recommendation to you.
Just take a look at this chart to see why.
You can bet on anything close to a 10% annual return if you put your money here.
I’ve covered this all over the place in my book, articles, and YouTube videos so I won’t go too far in-depth. Check out my other resources if you’re interested in learning more about index funds.
Related: In Index Funds I Trust
The Key: Automatic Investing Contributions
Those S&P 500 Index performance numbers are great in all but you only get the lion’s share of them if you’re consistently contributing to your fund.
Problem is most people are inconsistent in general, and even worse when it comes to being discipline with their money. This is why 76 million Americans are financially struggling or barely getting by.
Missing months of contributing money to your portfolio every year will cut off anywhere from $100,000 to $10,000,000 in potential lifetime earnings or more. No discipline will cost you if you commit this unforced error.
To protect yourself from this error and guarantee you always hit your monthly investment contribution, do this one thing: Set up automatic monthly contributions to your investment account.
By automatic monthly contribution, I just mean setting up a recurring transfer from your checking account to your investment account to buy more shares in your index fund every month.
If you can set this up (and continue to make enough money where there’s enough money in the checking account for the transfer to go through), you can ensure you eventually become a stock market millionaire.
That’s basically it to be honest. Not too complicated right?
The best part in my opinion is that this is 100% hands off labor once you set it up once. Setting up this monthly transfer could take as little as 5 minutes.
Just don’t stop these monthly contributions and the gravy train will keep cruising along to increase your net worth. You have to love this!
Gameplan Going Forward
Once you’ve set up your automatic monthly recurring investments (say that five times fast), all there’s left to do is sit back and relax baby.
Well not really, but it sounded good.
Your objective at this point is to make more money (and save more) so you can feed the beast more ammunition so it brings you back more money.
Your goal isn’t to make money so you can save it, but so you can invest it to earn a higher income. That’s what the 1% has learned and the middle-class struggles with executing.
But once you’re closer to retirement, or if you decide to retire early with your stock market winnings, then the gameplan will change. Eventually the beast will feed you money to live on instead of you feeding it.
Until you’re at that comfortable spot though, feed the beast with automatic monthly contributions and he won’t let your finances down.
Cheers to mastering our money!