By Alecia Blair, Military Saves Communications Project Manager, AFC® Candidate, FINRA Foundation Fellow
A new analysis found that in some expensive cities, most young people would need to save for more than a decade, and up to about 30 years, to afford a down payment on a starter home. It’s no wonder that a record number of young adults are living at home with their parents.
If you are postponing home ownership because of affordability, or simply live a life that has you steering clear of the longer-term commitments and costs of purchasing a home, you do not have to be sidelined from building wealth. Here are some wealth-building tips:
1. Understand Your Financial Health
Consider yourself a small business when it comes to understanding your financial state. Do you know your net worth? Do you know how much income and expenses you have every month? Completing personal net worth and cash flow statements are great ways to get a snapshot of your overall financial health.
2. Build an Emergency Fund, Not Debt
One of the best ways to help build wealth is to not become over extended with debt.
Instead of relying on credit cards to make everyday purchases, live by a set spending plan, and build an emergency fund of at least $500. If you can save three to six months of your household expenses, that’s even better. Use this fund when an emergency occurs (and later replenish it) instead of taking out your credit card and potentially racking up interest charges. In other words, borrow from yourself.
Additionally, this handy debt-to-income ratio can help you determine if you’re too much in debt or doing just fine. This basic liquidity ratio will help you figure out if you have enough liquid cash for a sufficient emergency fund.
3. Lower Expenses to Save More
Find joy in a simpler life. Now, that doesn’t mean you have to forego indulgences, but it does mean you should prioritize, plan and save for them. Doing this will help you search for creative ways to reduce variable and fixed expenses, freeing up more money to save and invest.
After you’ve found more money to save, make sure it’s with a banking institution that will give you the right tool with the best interest rate possible. Check out BankRate.com for comparison rates on CDs, Money Market Accounts, traditional checking/savings account, etc. Remember, every little bit helps! Oh, and remove the work from saving by saving automatically.
4. IRAs & Other Investment Tools
While many Americans equate the American Dream with owning a home, there are other investment tools to use to build wealth while you plan for that future goal.
For starters, tap out your retirement savings potential. Even modest monthly contributions to a retirement account for 30 to 40 years can, in part because of the miracle of compound interest, easily lead to an accumulation of several hundred thousand dollars. Learn more about saving for retirement and the options available to you.
Consider investing in stocks, bonds, or mutual funds to further diversify your investment portfolio. Visit Money & Mobility by saveandInvest.org to learn more about these tools and decipher your investment risk tolerance and overall philosophy.
When investing, steer clear of high fees and expensive advice. FREE guidance can be found through MorningStar.com for DIY help.
Invest regularly and, yes, automatically, to take advantage of dollar-cost averaging, which allows you to buy more shares when the price is lower. Investing as early as you can means you can enjoy the miracle of compound interest!
Need motivation to save? Let America Saves help you reach your savings and debt reduction goals. It all starts when you make a commitment to yourself to save. Take the first step today and take the America Saves pledge to save money, reduce debt, and build wealth over time. And it doesn’t stop there. America Saves will keep you motivated with information, advice, tips, and reminders to help you reach your savings goal. Think of us as your own personal support system.
How to Build Wealth When You’re Not a Home Owner >> http://bit.ly/29oaylN v/ @AmericaSaves #savings
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