After graduating from college and entering the workforce, the attention of many recent graduates turns to saving money and planning for that very first home. Certainly, planning for a first new home is an exciting prospect, but it can be a daunting one as well. Workings towards a home right out of college should actually involve staying out of financial trouble before ever thinking about a down payment or interest rate.
As a young person in your 20s, debt is most likely the most pressing financial issue. After getting into the workforce and pulling down a regular paycheck, you can begin to budget and plan to stay within your financial means. Feeling out that financial balance can take some time and often young people rely on credit cards as a cushion to that planning.
That cushion is a dangerous one, especially if you already have student loans to contend with and perhaps a car payment plan. In an era when roughly only a fourth of all college students graduate without significant debt, it is clear that debt is a pertinent issue for the vast majority of recent graduates. Debt in your 20s will profoundly impact your ability to buy a home or save for retirement in your 30s, further underscoring the necessity to stay out of debt trouble at an early age.
While student loans certainly play a part in this phenomenon, credit card debt has increased over time as credit has become more freely available in the United States. With that freedom has come more abuse and digging a financial hole at an early age is much more possible today than it was 20 years ago. When trying to accomplish specific real estate goals, that financial hole can be tough to climb out of.
As a more realistic goal, owning a home in your early 30s may be the target to shoot for. That target is indeed a popular one and the vast majority of first-time homeowners fall in that age bracket. After a little under a decade in the workforce, salaries typically reach a home purchasing level around age 30. While that salary amount is true for most, the great variable is the kind of debt that must be paid and early mistakes at 20 can cause payment troubles still at 30.
There are a number of pitfalls at an early age that can beckon spending when saving is probably the better idea for future financial health. One of the biggest is assuming that your parents and you can live the same kind of lifestyle. Don’t forget that it took years of working to reach the salary level your parents are working at. With that salary level comes luxuries that you at your entry-level salary cannot afford. You too will most likely reach that level, but not first thing out of school.
Another key item that young people spend a lot of money on is a fancy car. Through the ever-growing lease market, young people can afford high-end cars at affordable monthly payments, but that money spent ends in no ownership in the vehicle and no lasting positive effect on personal finances. To achieve real estate goals later in life, that money can be better spent saving for a down payment or for investing.
The key thing to remember is that everything you do with your finances in your 20s will affect your financial future, especially in your 30s as you start thinking about owning your first home. Your credit rating, your savings level, your amount of debt and everything else that goes into your financial history affects your ability to buy that home. Planning early can save headaches later with some sound financial planning at a young age.