Fitting Renting into Your Financial Planning

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Fitting Renting into Your Financial Planning

Many people view renting a home as a temporary stage on the way to home ownership; some of them save up funds for a down payment on a home while they are renting. But others prefer to rent all their lives. Just like owners, renters have financial planning issues and can also benefit from creating financial plans and sticking with them.

Renter’s insurance

Although there is no homeowner’s insurance to pay, there may be renter’s insurance. Renter’s insurance is not very expensive, and it can buy peace of mind for your belongings and valuables. Insurance is an important part of financial planning because it protects the wealth you have been building up for years; if you do not have renter’s insurance yet, it pays to look into its cost and its coverage and set aside funds for it. If you already have some other form of insurance like auto or health, you may qualify for a discount if you get renter’s insurance with that same company. Working with an agent can help you determine the amount you need to cover and at what cost.

If you are self-employed and work out of your home, you may be able to take a tax deduction on part of your renter’s insurance cost.

Rent and invest the difference

Some avowed renters find that the money they would otherwise have spent on ownership costs can be substantial, and they invest that amount in the stock market, mutual funds, currencies, or various other investments. Consider making an estimate of what you might pay for a home, then take the difference between that and a typical rent. The difference can be put into investments to build wealth. Remember to include utilities such as water, garbage collection, and possibly heat and electricity to make the comparison accurate. What this means is that renters can build equity through means other than their homes.

Your budget as a renter is typically more predictable than an owner’s budget because you don’t have to worry about a sudden repair sucking up a huge amount of your budget or your credit card. Because your housing expense is predictable, you can stay on track with your investing plan.

Profit from other savings

Some renters find that they pay less in various lifestyle expenses such as health club memberships because those things are already provided for at their apartments. If you are one of these people, consider diverting the money you would have spent on these amenities into an investment instead.

Many people have counted on their home equity to help fund their retirement. Of course, this only works when home prices rise. If you are not counting on it, you will have to rely on other means instead (and even if you do have equity, it might be canceled out by your home’s maintenance and interest costs). That means having a 401(k), IRA, or other retirement account and funding it regularly. Contrary to popular opinion, it IS possible for renters to get rich, provided that they invest in assets that grow. A visit to a financial planner can get you on the road to investing in assets that build your wealth as a renter.