Nest Egging 101

 In The Philosophy

Every year the Atlanta Journal Constitution writes an article about the real estate market. This year’s piece was observational and, like all good term papers, loaded with statistical references. This just in: according to the AJC, prices are rising in both home sales and rental markets. And, the team with the most points usually has the best chance of winning.

The problem with writing in statistic is that it fails to convey meaning or offer a true story. For example, the average 2-bedroom apartment in Atlanta rents for $1,150 a month. Really? While this figure may be statistically correct, it offers no practical value to anyone who is actually looking for an apartment.

This year’s AJC article touched on the age old dilemma many first time home buyers are faced with; should I rent or should I buy? People have been asking this question in every generation since the advent of home ownership. Why? Because there is no pat answer. And, trying to find one with a statistical approach completely fails to consider the human element.

So why don’t we consider the buy versus rent question in terms of practical reality?

Everyone understands the universal truth of saving money for the future. Yet many do argue, live for today as tomorrows are never promised. And yes, tomorrows aren’t certain, but in the event you are planning on hanging around for a lot more tomorrows, it’s a generally accepted idea the sooner you start saving for your future the better off your future will be.

Here is another universal truth: saving sucks. It’s a hard thing to do particularly for younger people whose salaries have yet to hit their full potential. Full disclosure, I, and many of my generation, never saved a dime when we were younger. Any money left over from paying the bills was meant to be enjoyed. I went well over a decade without even thinking about saving for the future. The entirety of my investment strategy, like many young people, was to simply pay the mortgage.

Paying the mortgage knocks down what you owe every month. And yes, the amount is laughably low to start, but it’s better than nothing. Paying the mortgage gives you a tax break that lowers your income. Paying the mortgage allows you to keep your property’s appreciable value. By making a mortgage payment, you are in essence, saving/making hundreds of dollars every month for your future.

For younger people, paying a mortgage is the easiest form of saving for the future. For renters, “putting something away for the future” is an add-on budgetary expense. That average $1,150 two-bedroom apartment that actually rents for $1,950 factors nothing for the future. To debate buying versus renting you have to consider the “forced savings” and the home appreciation a mortgage extends to an owner. On similar monthly payments, the renter would need to put aside several hundred dollars more every month to keep an even pace with the person who is simply making their mortgage payment.

Saving for the future is a high-minded concept you know you, “have” to deal with. Paying the mortgage is very concrete. And let’s be realistic, saving money when you are young isn’t practical. Every generation knows, this is the time in life you are supposed to be having fun, doing stupid things and generally acting irresponsible. “The weekend in New Orleans sounds like fun, but I am really saving for my future right now”, is a sentence a young person should never say. A more realistic approach would be, “the mortgage is covered, let’s go”!

Make enough mortgage payments and before long you can sell your home to buy a better one. Keep making mortgage payments and one day you will suddenly realize, “Holy crap, I have a nest egg”. You may not have actively saved any money toward it, but yet there it sits, nestled among the printouts.

Many people think a mortgage ties you down. Glass half empty types I am sure. But in all practical reality, a mortgage allows you to have it both ways. You are saving for the future without actually saving for the future. You are putting money away in background without the pressure to actively sacrifice your present. And, you can be silly with your money and adult-like at the same time.

Does this answer the buy versus rent question? No. But, if you don’t consider yourself a “saver”, it should give pause. You’re going to have to pay X to live somewhere. Might as well get something out of it. Or, as the financial types like to say, “make your money work for you”

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