Money Management

Ramit Sethi has some good advice about deciding whether to rent or buy a home. But read on for one crucial factor that must be taken into account. 

Ramit Sethi has a lot of smart advice about whether you should buy a home. Sethi has made it clear that he does not believe homeownership is the right choice for everyone and he advises that you run the numbers to see whether purchasing or renting a property really is a better deal. When doing so, he also says it’s important to consider phantom costs, like home maintenance, which can add as much as 50% to your housing expenses.

In giving this advice, Sethi is urging people to realize buying isn’t the only path toward wealth and that sometimes it can be cheaper to rent and you’ll end up better off if you invest the difference. While this can definitely be true, it fails to take human psychology into account.

Here’s the big issue with Sethi’s advice

There is absolutely no doubt that in some cases, you will spend less to rent than you would to buy — especially in high cost of living areas where you may have to sink a fortune into a down payment. And, if you invest the difference between what you’d pay for rent and what you would pay for a house, you can end up richer.

However, the reality is, many people are simply not going to work as hard to make investments as they would to make their mortgage payment. For the most part, people who own a house are going to do just about every single thing they possibly can to avoid going into foreclosure even if they struggle to make their mortgage payments for a period of time. This could mean slashing spending, taking a second job, or making other huge sacrifices.

Most people are not going to do those things to consistently invest.

If you do not invest and you choose to rent instead of own, you are going to end up with a substantially lower net worth than if you had owned a house. When you get older, you are not going to have equity in your house that you can cash in to help fund your retirement. Instead, you will have housing payments to contend with. Although Sethi has pointed out that if you invested, your investments can produce enough to cover those housing costs, that will not be the case for those who didn’t consistently put money aside over their lifetimes.

How buying can be a good investment

If you purchased a home, on the other hand, yes you’ll have incurred maintenance expenses and spent money on mortgage interest for all those years. And you may even have spent more than you would have if you rented. But you will have an asset to show for it.

You can live in your house that you’ve paid off and enjoy low housing costs so you won’t need as much retirement income. Or, if you can sell it for a lot of money (even if you put a lot in), that will still give you a lump sum amount of cash to help fund your retirement that you wouldn’t have had if you rented and didn’t diligently invest.

Homeownership may be the best path to wealth for the average person

The fact is, there is a good reason why the typical American has about 70% of their net worth in their residence. A house serves as a type of forced savings because the chances the typical person will consistently make their mortgage payment are a lot higher than the chances a typical person will invest money steadily over their entire working life.

So, while there are lots of situations where it may be better on paper to rent than to buy, that doesn’t necessarily mean this advice will work in practice.

Unless you can truly trust yourself to regularly invest money over many decades even when you hit some bumps in the road, buying a house may be your surest path to wealth — even if the math may not seem to work in every situation.

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Home buyers are asking for fewer concessions in this hot housing market. Keep reading to learn what moves one writer made when her buyers asked for more. 

Like 5.3 million other households, we sold our home in June 2022. Due to the sheer lack of inventory in Kansas City, we got two offers within hours of listing our home on the market. Both buyers offered far more than we anticipated receiving, but the offer we chose included slightly better terms.

We liked everything we heard about the buyers and their brood. In addition to being close friends with our next-door neighbors (who are amazing people), the agent kept telling us how excited the buyers were at the idea of living in that home. It was precisely how I felt about it when we bought it five years earlier. If I was leaving a home I loved, I appreciated the idea of another family feeling the same way.

This is where I normally get sloppy

We’ve sold many homes throughout the years, and I’ve always tried to be the kind of seller I would want to buy from. For example, I ensure everything is in tip-top shape so there are no repairs to deal with. There are no weeds in the garden, and the gutters are clean. I deep clean each room, then hire a professional cleaning crew to conduct a “move-out cleaning.”

In short, I personalize the process, which has gotten me into trouble more than once. For example, just as we were moving from the Midwest to the East Coast in 2007, the housing market was on the verge of collapse. I remember being frustrated with the real estate agent because she exaggerated how much she thought we could get for the home and was hurt by buyers who didn’t want to pay as much as we thought it was worth.

My problem then, and with almost every other real estate deal, was that I took it personally. Part of the reason I did that was because our homes are so closely linked to our family. It’s where we live, dream about the future, and make memories. In other words, I’ve tied my emotions to a house. The truth is, my family is still whole, and the memories still exist, even if we no longer live within those four walls.

Figuring it out

As a lifelong people-pleaser, I want everyone to be happy. It may be a likable trait, but it’s not always in my best interest. Following the sale of the Kansas City house, a tiny piece of me felt vaguely guilty about how much this family, with a sports team worth of children, paid. And for me, it’s tough to reconcile feeling grateful with feeling guilty.

Shortly before we were set to close on the house, I received a call from our real estate agent. The buyer wanted to know if we had any furniture we could leave behind for them. After all, the mid-century modern pieces they had in their last home would not fit the style of the new house. Conveniently, the buyers knew which rooms of our furniture they were most interested in keeping. Oh, and if we could leave the patio furniture, that would be great.

The buyers wanted me to know that they needed more furnishings to fill the rooms, and since they assumed my husband and I would be downsizing, we would have no use for some of the furniture.

We weren’t downsizing, but even if we were, a concession like leaving furnishings behind should have been negotiated before contracts were signed. We could have factored it into the bottom line of their offer. Instead, we were days away from closing, and I felt selfish for not wanting to leave furniture behind.

It’s strictly business

I’m not sure what came over me, but I realized that selling a house is just like any other business transaction. You tell the other party what it will take to close a deal, shake hands on it (or sign legally-binding contracts), and remain true to your word. I said, “I’m sorry, no.”

I wish that family nothing but joy in my Kansas City house, but they are adults who knew how much money was in their checking account and how much they could afford to pay for the property. And when they decided to leave their old furniture behind because it didn’t match the new home’s architectural style, they consciously chose to live with an empty room or two.

Looking back, I realize all the mistakes I’ve made by allowing emotions to play a role in buying or selling a home. As a business transaction, it’s no different than buying a new coat at Macy’s, and I’ve never once cried in Macy’s while buying a winter coat.

I will always be a feeler and hope to always care about other people, but that doesn’t mean I need to make irrational, emotion-based decisions.

At this moment, it appears the tight housing market is here to stay for a while longer. My hope for anyone struggling to purchase a home is that they’ll leave their emotions in a box somewhere as they house hunt. Five years down the road, they will be far more satisfied with the rational rather than emotional decisions they make.

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If you’re taking time away from the workplace to care for a loved one, you may be facing financial issues. Would a personal loan be a good idea or bad idea? 

Love is a powerful motivator. According to A Place For Mom, 17% of the U.S. adult population spends an average of 23.7 hours per week providing unpaid care to a loved one they don’t live with. Among those who live with the loved one, the time per week spent providing care jumps to 37.4 hours.

The fact that the average caregiver’s age is 50.1 years means caregiving duties hit during prime money-making years, often cutting into a person’s ability to save for their future. Given that the average time spent caring for a loved one is 4.5 years, it’s no surprise that some caregivers face financial hardships. Here, we look at whether taking out a personal loan to look after someone they care deeply about is a good idea.

The cost of care

When a parent, spouse, or child cannot care for themselves, someone must step into the breach. However, hiring a company to provide in-home care is expensive. For example, the national average cost of 24-hour companion care or 24-hour home healthcare is approximately $20,000 per month, or $28 to $32 per hour.

The average family simply cannot pull that kind of cash out of their checking account, leaving it up to a family member to take over care duties. There are two primary reasons one of these caregivers may consider a personal loan:

To make up for the money they’re not earning as they care for a loved one.To cover the extra costs associated with the care of their loved one.

Extra expenses

Unless the person they’re caring for has enough money to cover the extra expenses a caregiver can face, the caregiver must figure them out on their own. This includes:

Medical needs, such as prescriptionsAccessibility devices, including wheelchairs, walkers, and hearing aidsTransportation-related costsPersonal needs, including incontinence supplies, lotions, and bandagesHome remodeling for accessibility

Will a personal loan help?

A personal loan can be an excellent tool for someone who wants to repair their home, consolidate high-interest debt, or pay for a wedding. But a personal loan only makes sense when it fits into a borrower’s budget.

If you’re considering a personal loan to cover care-related expenses you don’t have the money for, you may be digging a difficult hole to climb out of. Here are a few reasons why:

While taking out a loan to pay for a loved one’s needs seems like the kind thing to do, it could leave you in a precarious position. One day, you may need care of your own, and anything you spend money on now is money you won’t have to pay for that care later. Unless you can afford the monthly payment, taking on new debt can lead to late payments and a drop in your credit score. The lower your credit score, the more difficult it will be to qualify for a loan in the future.

What to do instead

To give you an idea of the types of services available to caregivers, we’ll look at a sample of services provided in Illinois.

IL Department of Aging (IDoA) Caregiver Support Program: Provides financial assistance to eligible unpaid caregivers in the state. It also offers respite care, counseling, education, and training to support caregivers. It may also provide a small reimbursement for caregiving-related expenses. Adult Day Services Program: IDoA also offers the Adult Day Services Waiver, which provides financial assistance to caregivers through the Adult Day Health Program (ADHP). Community Care Program (CCP): A Medicaid-funded program offering services to help older adults stay in their homes. Through this program, your loved one may receive homemaking assistance, personal care, and other supportive services. In some cases, you may be eligible for payment as a caregiver. Illinois Home Services Program (HSP): As another Medicaid-funded program, HSP allows eligible individuals to hire personal assistants to provide in-home services, including personal care and homemaking. The recipient of care can employ family members as their paid caregivers. Aged, Blind, and Disabled Program (ABD): This program offers healthcare coverage, support services, and sometimes cash assistance.

And this is just a sample of services offered by a single state. No matter which state you live in, services are available to you. As lonely as caregiving can be, you don’t have to go it alone. You should never have to go into debt to provide care.

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Becoming a millionaire doesn’t have to be difficult. Following these guidelines can help set you on the path to a seven-figure net worth. 

If you want to become a millionaire, you need to make smart money choices. After all, amassing a seven-figure nest egg in your bank accounts and brokerage accounts is going to take some financial savvy.

The good news is, if you follow four simple money rules, you’ll be well on your way to achieving millionaire status.

1. Keep your fixed costs low

One of the first key rules to follow if you want to become a millionaire is not to overcommit yourself. If you sign up to have huge monthly payments consistently coming out of your checking account, you aren’t going to have the money you need to grow your net worth.

Fixed costs include things like housing, car payments, and other ongoing expenses you must pay month after month. Once you commit to spending this money, you have restricted your future self from making the kinds of smart choices needed to build wealth.

2. Don’t buy things to impress others

If you want to become a millionaire, it’s important not to spend money on things you don’t personally value. Especially as some of these things, like luxury goods or fancy cars, tend to be overpriced and don’t increase your wealth.

To be clear, if there is something you personally love and it’s within your budget to buy it without jeopardizing your other financial goals, then there’s nothing wrong with doing that. But chasing status isn’t going to make you actually rich — it is just going to make you look rich while you ultimately fall behind in your efforts to become wealthy.

3. Invest early and regularly

If you truly want to become a millionaire, investing is one of the most important things you have to do. This is what you should be doing with the money you haven’t over-committed to fixed expenses or used to buy things that impress others.

When you invest, compound growth helps you build wealth. This happens when returns you earn are reinvested so you become richer without any effort on your part. In fact, investing just $189 a month every month over 40 years is enough to make you a millionaire even if you do nothing else (assuming you earn 10% average annual returns). If you want to become a millionaire sooner than that, you simply have to increase the amount you’re investing.

4. Avoid bad debt

Finally, the last key thing to do to become a millionaire is to avoid going into debt for depreciating assets — especially if you’re borrowing at high rates.

There’s nothing wrong with using debt as a tool. For example, taking out a business loan to start a company of your own is a great way to build wealth if you have a solid business plan. But, going into high-interest credit card debt to finance vacations or dining out is going to set you back on your efforts to achieve millionaire status, since you’ll be making purchases more expensive and tying up future income you can’t invest.

If you follow these four rules, becoming a millionaire is almost definitely something you can do. Just cut out bad spending and debt, invest what you save, and you’ll be on your way.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Want to save $10,000 as quickly as possible? The right savings techniques could help you succeed. Find out what to do to reach your goal sooner. 

For many people, saving is a big financial goal. Having extra money set aside can help you feel more prepared for when life happens. But saving money can feel challenging, especially when everyday life costs more each year. You’re not alone if you struggle to stay motivated as you save. It may be time to consider what strategies will help you be more successful along the way. I’ll outline some strategies below that could help you reach your $10,000 savings goal sooner.

1. Pay yourself first

Many people struggle to reach their savings goals because they use up the funds in their checking account before they realize it, and there’s no extra money left to save. One thing you can do to ensure you stay on top of your savings goals is to pay yourself first. Every time you get paid, immediately transfer money to your savings account. When you pay yourself first, you’ll be unable to spend it all before some of it reaches your savings account.

2. Focus on smaller goals

A significant savings goal can feel overwhelming. $10,000 is a lot of money to save, no matter who you are! But breaking your savings goal into smaller, more manageable goals may feel more achievable. There are many ways to do this, but choose a method that works for you.

Here are a few smaller goal options to consider:

Save $2,500 every quarterSave $833.34 every monthSave $384.62 every two weeksSave $192.31 every week

3. Automate your savings

Many people struggle to save because they forget. It can be easy to neglect your personal finance goals when life gets busy. If you’re hoping to save $10,000 this year, you may want to consider automating your savings. You can set up automatic transfers so money is transferred from your checking account to your savings account regularly. Doing this can save time and eliminate forgetfulness, so you stay on track and don’t fall behind.

4. Pay yourself when you get a deal

If you’re working hard to increase your high-yield savings account balance, you may be looking for ways to save money on everyday expenses. Shopping on-sale items at the grocery store and negotiating your home internet bill are two examples of how to get a deal.

You can take these savings opportunities one step further by immediately paying yourself when you get a discount. Instead of allowing the money you would have saved to sit in your checking account where it can be spent, move it over to your savings account so you’re closer to reaching your goal. While it may not always feel like a lot, every extra dollar saved adds up.

5. Reward yourself for your continued efforts

When working on a savings goal, avoiding overspending on unnecessary purchases can be beneficial as it frees up more money to save. But that doesn’t mean you must deprive yourself of fun. For some, gamifying the savings process can be helpful.

If you need help staying motivated, find a way to make the process more fun by rewarding yourself with treats throughout your journey. You don’t have to spend money — it can be as simple as giving yourself extra time to enjoy a hobby when you hit your monthly goal.

But spending some money is okay if treating yourself to something special will help keep you motivated as you continue saving. A visit to your favorite ice cream shop is one affordable way to reward yourself for your progress.

Don’t give up on your financial goals

If you have a big savings goal of $10,000, first of all — congratulations! It takes dedication to prioritize your finances, and you’ve already made great strides by establishing an impressive savings goal like this. You can do it! By utilizing some of the techniques above, you can reach your savings goal sooner than you realize. No matter how long it takes you to save $10,000, be sure to thank yourself for putting in the work. Your hard work deserves acknowledgement.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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