Five Financial Decisions Every Young Person Should Make: Part 5

Too many people are playing financial catch-up. They made a dumb mistake or several dumb mistakes that unintentionally put them years behind on their current financial goals. In this post I define young as anyone who is a teenager and yet to graduate from college or university.

Here are the five things you can decide now to avoid YEARS of financial regret:

Decide you will pay for and save for as much for college cost as possible.
Decide to marry someone who has a clue about money.
Decide to work at least during the summer if not during the school year.
Decide to buy a car with cash.
Decide to rent until you have at least 20% down for your first home.

Part II: Decide to rent until you have at least 20% down for your first home.

Your single most important purchase will be your home. While some of the other decisions you make while you are younger might be non-fatal the choice you make in regards to a home will probably impact you for decades. You will need to be patient and save up at least 20% so you have a decent down payment towards your first home.

Also if you are married, purchase the home based on only one of your incomes in case you later decide that one of you will stay home when you have children. Photo by jsome1.

Here are seven things to consider when thinking about renting or buying a home:

People will tell you that renting is throwing away your money. There are calculators like this at Yahoo designed to help you decide about buying or renting. The truth is, however, depending on your situation renting may be a better financial decision – even if the calculator tells you otherwise.
Buying a home when you are not financially ready is a nightmare, not a dream. Things break in houses. Larger rooms need to be decorated and furnished. All these things require money. Money that most young couples cannot afford. And yes, there are the property taxes and the insurance costs that you didn’t include in your home ownership budget.
Renting is financially predictable and definable. Likely what you need when you are first living on your own is predicable rent payments. Don’t burden yourself financially with the extra expenditures that go with home ownership.
While you rent you can be saving towards a down payment. Open an account and call it your house fund. If you are renting you may have extra money left over to save up towards a house.
House values can decrease. Every calculation that says renting is throwing away money assumes you will have equity in the home. Equity typically assumes the house will go up in value. 2008 was a vivid reminder that houses do go down in value.
Renting makes moving easier. You’re young and married or single. You might even think you are going to be in town for several years. But when you are young your plans can change in a moment. Don’t allow a house payment to burden your moving plans.
Renting gives you time to mature and more fully develop your goals. Because this is the single largest financial decision you will likely every make, make it slowly. You might think you want something in a home, but when you are married or expecting kids or living off one income you might change your plans.