How to Build Wealth When You Don’t Own a Home – Orange County Register

Gita Sitaramiah | (TNS) Star Tribune

Darla Kashian recalls being shut down at her first home and fired the next day.

She was working at a startup company when the dot-com crisis hit. She panicked and accepted the first job offer she got. Looking back, Kashian, who is now a consultant at RBC Wealth Management, thinks she shouldn’t have used all of her savings on a down payment.

“I think you’re in a more powerful position when you have cash in the bank,” said Kashian, who also recalled making a $30,000 emergency repair immediately after another home purchase.

If you’re in your 20s or 30s and are frustrated by the recent home price boom and rising interest rates, or unwilling to rake leaves or shovel snow, take heart. There are other ways to save and invest toward financial stability and freedom.

Of course, homeowners who borrow and stay in their homes for decades can accumulate significant equity in their homes. You have the compulsory savings account of a mortgage plus appreciation, and prices have historically trended up. A notable exception were the years surrounding the 2008 financial crisis.

According to Habitat for Humanity, home ownership has made a significant contribution to the wealth of low-income households because they keep the majority of their wealth in their homes.

But homeownership comes with an opportunity cost, such as B. Less flexibility to relocate for career opportunities. Add to that the cost, sometimes for unexpected repairs.

“Anyone who has owned a home understands that houses are not necessarily an easy way to build wealth,” said Grant Meyer, financial advisor and founder of GTS Financial in Bloomington, Minnesota. “My home just needed a new water heater and a few appliances and certainly didn’t make me any money in the short term.”

We asked financial advisors for tips on how renters in their 20s and 30s can build wealth. Here are a few steps to get started:

Live on Less Than You EarnFor younger people, the reality of paying bills, credit card debt, student loans and rising rents can be overwhelming.

“The barrier for people who are in their 20s right now is just the harsh reality of living paycheck to paycheck and struggling to make ends meet,” Meyer said.

He and other advisors say this is the time to learn new skills at work or on the side to earn higher salaries, as well as develop side hustles to earn more income.

Learning to budget can help you have money to save and invest.

“You lose thousands and thousands of dollars if you never budgeted,” said Andrew Clarke, founder of Minneapolis-based financial empowerment website Expanding Wallet. “Loans are another thing that people struggle with, losing thousands of dollars in interest and late fees. If you’re struggling to manage debt, learn how to effectively reduce debt.”

Stash Savings for EmergenciesIf your car dies or you lose your job, it can keep you from racking up credit card debt or borrowing from company pension plans, which can be costly if you have at least three to six months of living expenses in a savings account.

Other ideas to boost saving: Put your tax refund in this account instead of blowing it up. Get a credit card that rounds up purchases and puts the difference into an affiliated savings account — but pay off the balance monthly.

Live with roommates to lower the rent, a decision made by some of Kashian’s younger tech clients. get a raise? Stow away your extra salary to take away instead of upgrading your lifestyle.

Invest in the stock market for the long term. Put as much money into your workplace 401(k) plan or set up a Roth IRA through a brokerage firm. The key is to keep the stock, mutual fund, or exchange-traded fund invested through the ups and downs of the market.

“A dollar saved on a 401(k) plan at 22 is like $1,000 saved at age 55,” said John Schonberg, chief investment officer of Stonebridge Capital Advisors. “It’s so powerful because you have so many years to grow this post.”

To start investing when money is tight, advisors say you should set the minimum to get full company match, and then gradually increase each year until you can maximize contributions. If that’s not possible, even $10 or $15 a week will grow significantly over 30 to 40 years.

Kashian advises trying to build a retirement fund that’s equivalent to a 20% down payment on a $315,000 home. Estimate the annual maintenance costs for your home and invest them as well.

“I’d rather see people allocate a larger amount of cash reserves for that long-term retirement plan, with the idea that maybe that homeownership decision has stalled once both their career and geographic choices are sorted out,” he said you.

Kashian warns older customers that buying a home isn’t always the right move for their adult children.

“When you’re 25 and you’re burdened with student loans and big car loans, and now you go and buy a house and suddenly you get the opportunity of a lifetime to move to Paris and work as a pastry chef, you can’t do it, because you have all that responsibility and not the flexibility. How to Build Wealth When You Don’t Own a Home – Orange County Register

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