It's hard out here for young people. If you are anything like me, you lacked any kind of substantial financial education as a youth. As a nation, we do not teach financial literacy in our institutions as we should, and most of us are forced to learn by trial and tribulation. Learning ex post facto (after the fact or action) is a terrible way to learn when it comes to financial decisions. Many of the decisions that we do make as we grow older seem like they are going to be beneficial in the long run, but prove to be stifling later.
P.S. To be fair, I was lucky enough to have a wonderful business teacher in high school that taught us a lot of really useful things... had I paid attention.
The folks over at Bigger Pockets publish awesome user and administrator blogs every single day. If you are interested in finances, real estate or real estate investing, I greatly recommend frequenting their site. A few days ago I read a Bigger Pockets article by Scott Trench entitled, "3 Negative Cashflow "Assets" That Devastate 20-Somethings' Finances." This article is definitely aimed towards the financial decisions and patterns of 20-somethings, but this stuff is by no means limited to those in their twenties given our economic climate. In his article, Scott points out 3 specific financial choices that many young people make that seem like great ideas at the time, but turn out to be bitter ones. I am in no way bashing any one who has made these choices or will make these choices. Everyone is different! Everyone has different strategies and different wants.
- Financing an automobile: It may seem like a responsible thing to do at a given point in one's career, but financing a brand new car can turn out to be an incredibly expensive endeavor. A new car will undoubtedly lose a drastic amount of value the moment that you sign the ownership papers. Also, many people don't understand that they do not pay that sticker price for the new car. Once the interest is amortized over time, the car costs far more than what it originally seemed. If you can continue to drive your parent's hand-me-down for a just a couple years longer, you can easily save what would have been your car payment and use that to buy a used vehicle and have no car payment. If you can put back $300 per month for 36 months, that's almost $11,000 for a used vehicle! That'll buy you a pretty decent car!
- Housing: This is a tough one. As the article points out, there are 3 choices here and each one is a more sound financial decision than the former. I have seen a lot of conflicting information on millennials and housing. Some of them say that we all want to buy and some say that we all want to live unencumbered. Either way, it's no mystery that renting is a losing battle. Of course, it's nice to never need to worry about maintenance, insurance, taxes, etc. However, eventually the renter will realize that they are financing 100% of 0% ownership. The next option is to buy a single family residence. Though it is far more economical to purchase a home, the means of financing said home can make a big difference in the long run. Don't buy luxury unless you can afford it. If you do finance the home, try to secure a mortgage that has no prepayment penalty attached so that you can pay more than your minimum mortgage payment every month. You'll be amazed at how quickly a loan can be paid down if you kick in more than the minimum. The last option with housing is what is known as "house-hacking." This is when the purchaser buys a property that they can leverage in their favor to either lower their cost of living of pay nothing at all! Examples of this method are buying a SFD and renting out available rooms to friends or buying a multifamily property, living in one unit and renting out the others! I am a big fan of this tactic!
- Education: This one is definitely the most difficult to grapple. We have all been taught that higher education is the ticket to a more rewarding and lucrative career. Unfortunately, that notion is beginning to shift. The price of education is inflating far more than students' or their parents' wages. It is becoming increasingly more common for students to absolutely have to secure financial aid, which will need to be payed back + interest. The sum total of the loans is staggering and restricting. It's criminal in my opinion. Many young people have an absurd amount of debt before they even have a job and they will be dedicating a dramatic amount of their income to debt service for years and years. There are many careers that require this type of higher education. I think it's paramount that if you are a student that is unsure of what you want to do with yourself, that you not go to college just to do so. Trust me! I absolutely love philosophy and I do use a lot of the things I learned in school everyday. I was also blessed not to have to acquire any student loans. But I would have seriously reconsidered if I would have needed the loans.
Again, I am by no means saying that anyone is wrong! We all make mistakes and many of us do not consider mistakes to be the same.
If you have any questions about real estate, feel free to contact me. It seems as though the housing market is really heating up! I am more than happy to represent you or anyone you know as their Realtor!
Troy Franklin Gandee