Oct 20, 2022
For many, homeownership is an essential part of the American dream. That doesn't mean it has to be your dream, too.
Maybe you don't need the space or a backyard for your dog. Maybe you don't think real estate is the best investment out there.
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Or maybe, with mortgage rates on the rise you simply can't afford to buy right now.
Either way, people will tell you that renting is like burning your money — but in reality, being a renter can work to your financial benefit. Here are five ways to flourish.
1. Take advantage of work-from-home policies
At the onset of the pandemic, rent in expensive cities like New York and Seattle plummeted. But when inflation really started to soar, prices not only rebounded, but are now up significantly all across the country.
But some pockets are still affordable. If you’re working remotely permanently, why not look into your options beyond the major metropolitans to set up shop? According to analysis from Rent.com, some of the most affordable cities in the country include: Springfield, MO; Wichita, KS; Lubbock, Tex. and Toledo, OH.
Some places will even pay you to move there.
As a renter, you’re much freer than a homeowner would be to pick up and relocate somewhere more affordable. Plus, in mid-size markets and smaller towns, you’re likely to get lots more space for the same or less dollar value.
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2. Find better investments than homeownership
Many people assume that owning a home is a good investment, but that's not necessarily true.
A 2010 Federal Reserve report titled "American Dream or American Obsession?" showed that the actual rate of return on U.S. real estate between 1975 and 2009 was below 0%.
Meanwhile, the stock market's average annual return between 1975 and 2009 was 3.375%, after taxes and inflation, according to the Fed study.
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Today, it's never been easier to put money into the market — between investing apps and all the alternative ways to invest in real estate, you have some great options to grow your money.
3. Use the money you save to pay down debt
Owning a home involves a number of non-recoupable costs like mortgage insurance, homeowners insurance, interest and property taxes. And when something breaks down, you’ve got to fix it yourself instead of simply calling the landlord.
When you’re able to save money as a renter, you could take it and put it toward reducing your debt load.
If you’ve been leaning on your credit card to help keep up with soaring inflation, you might be doing your future self a disservice.
Credit cards have notoriously high interest rates. And once that interest starts compounding, a $500 couch could cost you way more in the long run. Because of that, financial advisers would always encourage you to prioritize paying down your balance.
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And it doesn’t hurt that clearing your debt should help improve your credit score, which will make it easier for you to get a mortgage down the line if you do decide to become a homeowner.
Read More: Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
4. Invest in yourself
It's never a bad idea to upgrade your marketable skills by going back to school.
Getting a master’s degree or even just going back to finish your undergrad in a high-paying new field might be all you need to move yourself into a new tax bracket.
A study out of Kansas State University compared the financial situations of three different categories of students: those who dropped out and never went back to school, those who went back to college but didn’t finish their degrees and those who went back and earned their degrees.
The results showed that consumers who return to school and earn degrees tend to earn more. Immediately after graduation, students can expect to earn an average $4,294 more. And their average yearly wage growth was generally increased by another $1,121.
If that sounds appealing, some of the most profitable roles right now according to Monster.com include nurse anesthesia, telecommunications engineering, financial analysts, electrical engineering and computer engineering.
5. Ditch your car
Today’s steep gas prices are one of the major drivers of the country’s record-setting inflation rate, which means cutting back on driving — or cutting it out entirely — could save you tons.
If you’re renting in a major urban center, pick a place in a neighborhood that’s walkable and has access to public transit. Cutting out gas, an auto loan or lease, car insurance and all those expensive repairs could save you hundreds of dollars a month.
Of course, if you can’t live without a vehicle, you might consider dropping down to one car for your entire household.
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Sigrid is a senior associate editor on the Moneywise team, where she has also worked as a reporter and staff writer.
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