A recent study has suggested that renting an apartment can make you more money than owning a home. As shocking as this may sound, a thorough review of the data, reveals you should take your time before doing anything drastic.
“A Revision of the American Dream of Homeownership,”published in 2017, does not outright tell us that renting is more profitable, but sobers us with the fact that property appreciation is not as wealth generating as we have come to believe.
Home owners tend to accumulate wealth more than renters, now, due to the accumulation of a strong down payment for a house. From saving for a down payment to switching to home ownership, owners generate wealth easily while renters do not.
The study however, suggests that renters who invest in the stock market could easily outperform homeowners that do not. “When you assume that those monies are reinvested at a rate of return, renting, on average, wins in terms of wealth creation,” states the study’s authors.
Also noted by the study, is that “the difference in wealth between renting and owning can be most affected by choices within the scope of the individual rather than through the impact of exogenous market variables.”
As urban centers continue to see rents skyrocket, it is important for many to learn how to live in a city on a budget. Here are some tips to get you started:
1. Build a real budget and stick to it.
Learvest is a financial planning tool created by a Harvard Business alum. Their team recommends at 50/20/30 rule.
50% of income should go towards fixed costs (this will largely include rent)
20% should go towards paying off debt or be put into savings
30% should be used for flexible costs (entertainment, eating out, etc)
2. Think about what your rent includes and take advantage of these offerings.
Think about what rent includes. Are utilities included? Do you have a gym? Is parking included? Is public transportation readily accessible nearby? Do you have access to free laundry?
These are all money savers that can lower your effective rent.
3. Reduce transportation costs
A car can easily zap your budget. Financing/leasing costs, gasoline costs, maintenance, and insurance add up very quickly. Instead, opt for public transportation and perhaps look into a bus pass. A bicycle can pay itself off in no time and prove to be a worthwhile investment.
4. Eat-in more frequently.
While it can be tempting to try the array of restaurants that come with living in a larger city, make a concerted effort to cook your own food. This can save hundreds of dollars per month. Try to make cooking a fun event and include friends when possible. Likewise, packing a lunch during the day can also have the potential to save hundreds of dollars per month.