Rent, save money - MoneySense

Rent, save money

People believe that home ownership is the only path to financial success. Newsflash: It ain’t!

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I hear it all the time: “Renters are throwing good money down the drain!” Nothing could be further from the truth.

Home ownership comes with a lot of responsibilities. And while it’s true that homes appreciate over the long term, so does money well invested. The thing is, people often don’t count all the things associated with home-ownerships into their costs.

They say things like, “I bought this house for $300,000 and seven years later it’s worth $500,000. That looks like a gain of $200,000 and makes you feel pretty smart, right?

What about the interest you paid on the mortgage during those seven years? You have to add that in to your cost. And in the early years of your mortgage, most of your mortgage payment is interest.

According to the Stats Man, homeowners spend $57,649 a year compared to renters who spend $32,536. That’s over $25,000 a year going to savings if you’re smart. And then there’s home upkeep. There is always something to be done on a home. One rule of thumb is to set aside 3% of the value of your home every year to keep it in tip-top shape. Some people disagree with this with home prices having risen so quickly so let’s adjust that down to 1.5%. On a $300,000 house you’d need to include about $375 a month in your budget for maintenance (quit bitchin’ about your condo fees!). As a renter, that’s another $4,500 a year in savings.

I’m all for home-ownership for the right reasons. But when I see people buying massive homes, taking on wickedly high mortgages, and then buying-now-and-paying-later to fill their castles with all the good stuff they think of as “needs”, I cringe.

Renting does not deserve the bad rep it has since it may mean more money in your pocket to achieve other savings goals.

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