Picture it: the American Dream. What do you see?
Seriously, think about it.. I'll wait 😉
Alright, do you see yourself earning a good living, married, college education, owning a beautiful home, a manicured lawn, 2 kids, one or two cars in the driveway, and of course, the white picket fence?
No matter how you answer, you are not alone. For some, the dream written about above is almost unattainable, yet some still strive for a similar mid-century vision. This idea of the American Dream had become a set of stereotypical financial and life goals spawned after World War II when the economy made this dream more achievable. However, for many Americans, this is no longer achievable, perhaps not even desired.
When you envision your version of the American Dream, it may be less Leave it to Beaver and something much more modern. Truslow Adams himself, who coined the term the American Dream in 1931, meant something much different from this idea of an idyllic suburban home that comes with all of the trappings of a financially stable consumerist nation. Instead, Adams described a world in which, no matter who you are, where you come from, or your socioeconomic status, you should be able to achieve and recognize chances for the ability to live a better life.
The elders of many millennials taught them that going to college was the best way to be successful, make the big bucks, and reach all of our goals like buying a house, finding the dream career, marrying, and having children. However, after the Great Recession of 2008 hit, millennials found themselves leaving college to find themselves thousands and thousands of dollars in student loan debt and scrambling to find a job, even multiple jobs, that didn’t even cover the monthly student loan payments.
Millennials have redefined the American Dream out of necessity and because they see the world differently. But, unfortunately, the minimum wage has not increased since it was raised to $7.25 in July of 2009, which means that higher-paying jobs’ salaries have also been knee-capped. Moreover, while the minimum wage stays stagnant, college costs, childcare, groceries, gas, utilities, and other necessities continue to skyrocket (thanks inflation).
With fewer earnings and more debts, millennials and other young adults are now re-prioritizing their wants and needs. As a result, fewer and fewer adults marry, buy houses, and have children in their twenties.
For many, the new American Dream is all about quality over quantity: fulfilling jobs, more time to travel, more living, family time, financial wellness, smaller homes, and lives promoting happiness and mental health.
So, should you rent or buy a home? Unfortunately, there is no blanket answer as what is suitable for each person is different, so let’s look at the various considerations and the pros and cons of renting and buying a home. If you're short on time, scroll down to the quick pros and cons list at the bottom of this page!
Considerations for Buying
If done right, buying a home can mean building equity and increasing your net worth. Your house may increase in value, but it can also decrease in value due to disrepair, newer housing developments, the surrounding neighborhood, and other factors. If you plan to stay in one place and plant roots for, say, five or more years, it may be worth buying. However, the numbers need to make sense.
Suppose you don’t plan on staying in an area for long. In that case, it is important to remember that houses are not liquid assets, and you will have to sell or rent out the home when you move, which is a gamble depending on the economy, possibly putting yourself at risk of losing money. Additionally, just because you can afford a mortgage payment does not mean you will be able to afford closing costs, maintenance costs when things break, increases in utilities, and property taxes.
Owning a home that is paid off by your retirement years lowers your monthly living expenses and gives you a legacy you can pass on to your heirs. However, while homeownership comes with greater stability, it also comes with more responsibility for maintenance, bills, repairs, taxes, and more.
Considerations for Renting
Renting comes with more flexibility than owning a home which is ideal for someone who doesn’t want to be tied down to a specific location for an extended period, travels a lot for work or leisure, or wants the freedom to move.
Renting may offer less flexibility in terms of customizing or upgrading your living space, the number of individuals allowed to live in the home, and the ability to have pets. Renting does not provide an opportunity to build equity, nor does it directly increase your net worth. However, renting does require less maintenance and responsibility. Realistically, when you rent, all you should be responsible for is making sure your rent is paid on time and the possibility of covering the utility bills. Water heater goes out? Not your (financial!) problem.
What is Financially Responsible?
It is essential to run the numbers. Buying a home doesn’t automatically equate to building wealth. Homes can increase in value, but they can also be poor investments. (Have you seen the Money Pit starring Tom Hanks?)
Ultimately Do What is Best for You
Weigh the pros and cons to make sure you’re making the most informed decision that suits your needs and lifestyle.
Buying a home is a HUGE commitment, so it is crucial to be sure this is what you want. In addition, make sure you’re putting enough down to avoid going underwater as market values fluctuate; this is why most lenders would like to see you put 20% down when you purchase your home.
Remember not to compare yourself to others. Gone are the days where we should be keeping up with the Jones’s; The American Dream is whatever you want it to be.
Are you still feeling unsure about what is best for you or need help running the numbers? Schedule a time to chat with me, and I will be happy to discuss your options with you.