Imagine yourself a young person in a home in 2008 that your family had only recently moved into. You changed schools as your parents did all they could to buy in a particular neighborhood which would allow you to go to an award winning school with test scores at the top of the charts.
Everything seemed perfect as you finally had your own room with privacy you so desperately prayed for and a neighborhood full of kids your own age who all felt safe to play out front.
But it was not to last...
One night you are woken up hearing fighting from your parents’ bedroom and you know something just isn’t right, but you have no idea what is occurring. Your parents seem stressed and you overhear them talk about “the bank”, home values and Wall Street. You see them pouring over mountains of paperwork at night and on the weekends and you even go with them to a large convention center where you stand in line after line as your parents wait their turn. In the end, your mother is crying and your father is distant. Then one day they sit you down and explain to you that you must move again, but this time to a home that has one less bedroom so you’ll once again have to share a room. Due to “boundaries” you’ll have to say goodbye to your friends as you will be going to a new school once again. This school is older, with lower test scores and the children and parents don’t appear to have the same passion for learning that was so prevalent at your current school. Such was the life for millions upon millions of American children from late 2007 until most recently.
Now imagine the lifelong impact this had to of had on this generation of children. Would they perceive homeownership in the same manner as American children of the past?
We must accept the fact that for many, buying a home brings up memories best forgotten and absent proper coaching millennials today may put off homeownership far longer than what would be considered by most to be financially healthy.
Owning a home is still one of the greatest investments the average American can make. As one must live somewhere, investing into a home with a fixed interest rate provides stability one will not experience with a landlord.
Landlords write contracts with annual increases in them. Renting means one is subject to moving at the end of the lease term. One might assert that they are not subject to maintenance cost, but this is only partially true as most landlords and management companies factor maintenance into the rental rates they charge.
Please read this excerpt from CNBC in Dec. 2013;
“There are now 43 million renter households, or 35 percent of all U.S. households, the highest rate in over a decade for all age groups, according to Harvard's Joint Center for Housing Studies; 4 million more renters today than there were in 2007. For those aged 25 to 54, rental rates are the highest since the center began record keeping in the early 1970s. As a result, rental vacancies have fallen dramatically, and rents have skyrocketed.”
In this same month we heard this; Housing Secretary Shaun Donovan declared “the worst rental affordability crisis that this country has ever known.”
Since then, things have only become worse for those who rent which is why we see so many millennials, many saddled with massive student debt too easily obtained, now living with their parents. Even if they can afford the monthly payment and have proven so through their rent payments, they have not been disciplined in their savings strategy.
Saving or rather budgeting, is something that is not overly complicated, but it is extremely difficult to adhere to. Staying the course and “doing without” while your peers seemingly indulge, is temptation too great for most.
THE FOUR “B’s”
As the author of Financial Sense to White Picket Fence, I designed a strategy of what became known as the Four “B’s”-- Budgeting, Borrowing, Buying & Beyond. In this article I will focus on the first “B”, or Budgeting.
The first step is not complicated, but as written, can be difficult. Budgeting is not possible without first determining exactly how one is currently spending their money and precisely how much one is now making.
If you review your current paycheck stub and determine over what period of time you are paid, you can then reveal whether you are paid once a week, twice a month, or every other week. This is critical when trying to determine your monthly net income.
For example, if one is paid twice a month, we would take their net pay, times this by twenty-four and then divide by twelve. However, if one is paid every other week we would take their net pay, times this by twenty six and then divide by twelve.
With a monthly net income number entered into the income side of one’s budget, they can now begin the tedious process of entering in their actual expenses. Why tedious? Because if you gloss over this part of the exercise, you’ll do what so many are guilty of, beginning something that is destined for failure.
I would suggest grabbing a notepad and carrying it with you for forty-five days. Write down everything you spend money on from regular bills to quick stops at the gas station where you run in and pay cash for a few snacks, cigarettes, gum, energy drink etc. Document your trips to the movies, eating out regardless of the amount and don’t forget to count those fancy coffees! Document everything. In the end you will likely be surprised at what you are spending.
With the income and expense columns completely filled out, you are now in the position to ask yourself two of the most important questions of your financial life; what do you want and what are you willing to give up for it?
If you want to be a homeowner, there are things on your list, no matter how seemingly insignificant, that you will have to give up in order to begin the savings process. Imagine saving only $150 per month. Even earning zero interest, after 36 months this is $5,400. A FHA down payment of 3.5% on a $150,000.00 dollar home is $5,250. It adds up fast!
So you say you live in California? Well, true, you’ll have to save a little more for a little longer but as the saying goes, the road to China begins with the first step! If you’re not going to begin today, when will you begin? $250 dollars a month saved for just four short years at zero interest equates to $12,000. A $300,000.00 dollar home with an FHA 3.5% down payments requires $10,500 down. See, you can do this!
The message here is simple, but timely, what was once taught in households across America most experts claim to be no more. Daily saving disciplines and delayed gratification may not be exciting, or even today’s norm, but if mastered, will set you apart for a brighter tomorrow like nothing else can.