No matter what “wealth” looks like to you, chances are that you’re making financial decisions in an effort to get you there.
What Is Wealth?
At what point would you consider yourself wealthy? Is it a specific dollar amount in the bank, or simply the point at which you recognize you’ve obtained certain freedoms, like retirement or paying off debt?
The road to financial freedom is different for everyone, as are the factors that determine what “wealth.” This makes it difficult to create one specific blueprint for building said wealth; instead, everyone will have a unique path intended to reach their own important financial milestones.
This journey can rely on many individual factors, including your:
- Budget/Ability to save
- Family structure
- Existing debt
Of course, there are many other factors that may impact how you build wealth, what you define as wealth, and how long it takes you to reach that goal. Determining what wealth means to you, though -- and how you’ll know when you get there -- is an important first step.
How Homeownership Can Build Wealth
Buying a home isn’t for everyone, and in some cases, it can actually impede your journey to wealth. However, when done properly, there are many ways that homeownership can be one of the biggest catalysts to your financial success.
Put simply, homeownership “forces” you to invest each month. Housing costs aren’t optional, whether you opt to pay rent or make an equity-building mortgage payment. These automatically become your top budget priority, no matter the financial situation. With a mortgage, though, you are building something each month that you can draw from in the future.
While saving and investing should always be an important part of your monthly allocation, these can be easy to forgo when unexpected expenses pop up or money gets tight. If you’re the type who has ever skipped saving “just this month,” a mortgage might be the foolproof choice you need.
Homeownership also builds wealth thanks to the housing market. While this has a lot to do with what, when, and where you buy -- and there are always temporary downturns -- the market as a whole is on a steady climb. It’s very likely that the home you buy today will be worth quite a bit more in 30 years, leaving you with a large, all-equity asset.
Buying a Home vs Renting
Many Americans struggle with the idea of buying a house versus renting. Renting may seem cheaper -- especially in terms of insurance, taxes, and maintenance -- but for many, homeownership is actually the fiscally-responsible option.
It’s important to look at your own personal factors before deciding whether investing in homeownership is your best path toward wealth, versus renting. This means looking at prices (and property taxes!) in your city, as well as local market trends.