Purchasing a home means a major drain on the finances of all but the wealthiest Americans, with high prices, tight inventory and rising mortgage rates all conspiring to place traditional home ownership out of reach for many Americans. While some have decided to co-habitat in adult dorms or shack up in RVs, renting remains the most popular choice for those who can't afford to own their own home, but it's a lifestyle that may not make the best financial sense, according to a new report from the Urban Institute.
Renters live in a state of financial fear
The report examined data from more than 7,000 Americans to discover that renters have more trouble meeting their basic financial needs than homeowners, from paying for housing to making sure everyone has enough to eat. Because renters tend to be younger, less-educated and less wealthy than homeowners, the fact that they have more money troubles shouldn't be a complete surprise. But even when examining the wealthiest of renters and homeowners (those earning 400% or more of the Federal Poverty Level of $12,140 a year for a single person), the survey found those paying a landlord were twice as likely to report low confidence in covering an unexpected expense when compared to their home-owning counterparts.
While renters usually deal with lower monthly payments than homeowners (except for in certain markets), they also contend with unexpected expenses, such as sudden rent hikes and frequent moves. Renters are also more likely to suffer an unexpected and large drop in their income when compared to homeowners (17.5% vs. 14.1%), making their lack of emergency funds particularly worrisome.
How renters can save themselves
Judging by the report's data, the best decision long-term renters could make would be to purchase a house—not exactly helpful advice for many who are already scrimping and saving to make ends meet. There are, however, some good personal financial habits anyone—renter and homeowner—can benefit from.
- Build a Budget: You can't determine how much money you need to save without first accounting for all of your income and expenses. Nobody looks forward to spending a well-earned weekend calculating how much money they spend on takeout or shopping, but the benefit is finally being armed with a roadmap to financial stability. If you prefer to enlist the help of your smartphone, apps such as Mint and You Need a Budget can help streamline the process and even make building a budget fun (seriously).
- Pay Your Bills On Time: It’s one thing to pay monthly bills for essential services, such as heating and electricity; it’s another thing to fork over money for late fees and interest payments. Make sure you pay your utilities and credit card bills promptly, and if it looks like that's not possible, reach out to your creditors rather than attempting to ghost them—you have a better chance of working out a payment plan in your favor if they don't have to come knocking at your door first.
- Don't Spend Your Paycheck: Or at least, don't spend all of it. This can be tough but try to consistently put some money aside each payday to go into an emergency fund in case your car breaks down, you break your arm, you break your phone or some other unexpected expense crops up. Even if it's just a small amount and less than the 10% ValuePenguin recommends, getting into the habit of saving now will pay off later.