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Why People Struggle To Pay Rent In America

Why People Struggle To Pay Rent In America

All across the nation, rent is increasing to the point of being unaffordable. This problem is particularly acute in cities, where more and more people are being burdened by their rent. This is widespread, despite the rapid economic growth after the recession. Worst of all, there’s no easy solution.

How is it that all salaries and employment levels can improve so much yet more people are struggling to pay their rent than ever before? Although incomes have increased about 4.5 percent since 2011, rent is up a massive 18.5 percent thanks to a perfect storm of factors, according to this report.

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Rising Prices

Prices have been rising since the lows of the recession. These high property prices mean that property owners will charge more for rent and that people will be more inclined to rent instead of paying for a home of their own.

Another contributing factor is the sheer growth in the popularity of renting. The Nation’s Housing 2015 report from The Joint Center for Housing Studies of Harvard University’s State found that this decade is shaping up to be the biggest decade for renter growth ever. Younger people have always been more likely to rent than own, and now older households are renting more than ever with a drop in home ownership levels.

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There’s more construction of new apartments and multi-family housing than in recent years, but that’s not really addressing the problem. Demand is far outpacing the supply and most of these new units are for people earning more than the national average. The general rule of thumb is that renters should only spend 30 percent of their income on housing, but the State of the Nation’s Housing Report shows that two-thirds of households couldn’t afford the median rent of this newly-constructed housing.

Just Move?

With no real solution in sight, it’s easy for someone to just tell renters to move somewhere that’s cheaper. At best, this is bad advice. At worst, it’s insensitive to the real problems faced by renters without thinking of other factors.

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I witnessed the effects of high rent during my first job, where I worked in an extremely wealthy suburb outside of New York City. I had no chance of affording an apartment within five miles of the town, but that’s to be expected because it was an entry-level job. However, veteran police officers, firefighters and other important government employees were also unable to afford living in town. Some of them would come in from almost an hour away just because raising a family anywhere near that town would have been impossible on a modest salary. Having emergency responders so far away was a detriment to the town, especially when they were needed. Local politicians would pay lip service to this problem, but little was done to address it.

The “just move” argument also means less diversity. The U.S. has always been a melting pot of different ethnicities and backgrounds, and letting people get priced out affects that blend. An extreme case of this is San Francisco, where a lack of construction and sky-high prices has made it the only country in the region that’s becoming less diverse over time. Susan Fainstein, an expert on city planning who’s penned several books on the subject, writes that, “Diversity underlies the appeal of the urban, it fosters creativity, it can encourage tolerance, and it leads city officials to see the value in previously underappreciated lifestyles.”

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Telling people to simply move from an unaffordable place is easy, but moving is difficult. Although an apartment might be expensive, in a way, it might be more expensive for someone to move to a cheaper apartment. A fair amount of cash is required to take on a new apartment thanks to deposits, so people living paycheck to paycheck are unable to come up with enough money to move. Alternatively, their high rents are eating away at any potential savings. Moving outside the city also means fewer opportunities, as the busier urban centers are where most of the jobs are.

No Easy Solution

It’s unknown if the apartment supply will rise to meet the levels of demand, but it could happen since renting out housing has become an increasingly steady form of income to landlords. As current trends show, most new housing ignores the needs of median wage earners.

What could really make a difference would be people’s attitudes changing. Instead of forcing people to be move, the root issues of a lack of diversity in housing options and insufficient salaries should be looked at.

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Anum Yoon

Writer & Journalist

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Published on May 7, 2019

How to Invest for Retirement (The Smart and Stress-Free Way)

How to Invest for Retirement (The Smart and Stress-Free Way)

When it comes to stocks, I bet you feel like you have no idea what you’re doing.

Everyone who’s not a financial expert has been there. I’ve been there. But, time is passing and you need to be crystal clear with how you’re investing for your retirement.

Otherwise, it’s back to work until you can afford not to. So, how can you invest for retirement when you’re not a financial expert?

You take the time to learn the fundamentals well. If you do, you can grow your wealth and retire happy. The best part is that you don’t need to be a financial expert to make smart investment decisions.

Here’s how to invest for retirement the smart and stress-free way:

1. Know Clearly Why You Invest

Odds are you already know why should invest for retirement.

But, maybe you know the wrong reasons. It’s time you get clear on why you’d like to retire. Here are some questions to help you get started:

  • Will you spend more time with your family?
  • What does retirement mean to you?
  • Are you looking to launch that business you’ve been holding off for years?

Everyone wants to retire but not for the same reasons. Once you’re clear for why retirement is important for you, you’ll focus on making it happen.

Investing in the stock market allows you to take advantage of compound interest.[1] All this means is that your money earns money on top of its interest. A reason why investment in the stock market is one of the best ways to plan for retirement.

2. Figure out When to Invest

“The best time to plant a tree was 20 years ago. The second best time is now.”– Chinese Proverb

It’s true if you’d had started investing when you were 10 years old, you’d have a lot more money than you do today.

The reality is that most people don’t start investing until it’s too late. So, if you’re currently waiting for the perfect time to start an investment, it would be today. Open your calendar and block out 2 to 3 hours to choose how you’ll invest for retirement.

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A quick way to get a snapshot of where you stand is to use Personal Capital. Input all your personal information and spend some time setting your retirement goals. Once completed, you’ll know where you stand with your retirement.

Having a savings account for retirement isn’t planning for retirement. Why? Your money loses value when you factor in US inflation.[2]

3. Evaluate Your Risk Tolerance to Create the Perfect Portfolio

Investing your money well depends on your emotions.

Why?

Because when the market drops most people panic and withdraw their money. On average, the US stock market yields an annual 6% to 7% ROI (return on your investment.) But, this won’t happen if you’re worried about short-term loses.

Before you invest your next dollar, know your risk tolerance.[3] Your risk tolerance determines the number of risky and safe investments you’d have.

Regardless of your investing style, you need to view investing for retirement as a long term game. Know that some years you’ll lose money but recoup this in the long-term.

Avoid watching market-related new. Also, create a double authentication to log in your investment account. This way you’re less likely to withdraw your money.

4. Open a Reliable Retirement Account

Depending on your circumstance, you may need to open a new brokerage account. This is the account is where you’ll invest your money.

If you’re currently working for a company, odds are that they offer a 410K investing account. If so, here’s where you’ll invest most of your money. The only problem with this is that you’re limited to the stock options that are available.

You do have the option to open a separate IRA (individual retirement account.) Here are some of the best brokers:

  1. Vanguard
  2. TD Ameritrade
  3. Charles Schwab

5. Challenge Yourself to Invest Consistently

Committing to invest for retirement is hard, but continuing to do so is harder.

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Once you’ve started investment for your retirement, you run at risk from stopping. Often you’ll want to contribute less, so you’d have more money in your pocket.

That’s why it’s important that you create a budget that allows you to invest each month. If you’re working for a company, you can set a percentage for the amount you’d like to contribute each month. Most people by default contribute 1% but aim to contribute 10% to 15%.

Be the judge for how much you can afford to contribute after covering important expenses. To stay motivated, use Personal Capital to view your net worth.

A benefit to contributing money to your retirement account is not taxed. For example, if you earn $100 and invest 10%, you’d contribute $10, then get taxed on the remaining $90. As of 2019, the most you’re able to contribute towards your 401K is 19K but this can change.

6. Consider Where to Invest Your Money

The most common way to invest your money is in stocks, but it’s not the only way. Here are other ways to invest:

Robo Advisors

Robo-advisors[4] are fancy algorithms that’ll choose the best investments for you. Sites like Wealthfront make it easy for first-time investors to invest their money. You’d input information about yourself and set your risk tolerance.

Then, set your monthly contribution amount and your robo-advisor would do the rest. Robo-advisors charge a fee to manage your money, but less than regular advisors.

Bonds

Think of bonds as “IOUs” to whomever you buy them from.

Essentially, you’re lending money and charging interest. Like stocks, not all bonds are equal. Some will be riskier than others depending on their rating.

Here are the different types of bond categories:[5]

  1. Treasury bonds
  2. Government bonds
  3. Corporate bonds
  4. Foreign bonds
  5. Mortgage-backed bonds
  6. Municipal bonds

Mutual Funds

Picture a group of people dumping all their money in a jar that’s managed by a professional. This is how mutual funds work. The fund manager manages the money looking to earn capital gains (interest.)

One of the best types of mutual funds is index funds. Since these funds don’t try to beat the market and instead follow it, they need less research. Because of this they often charge the lowest fees and yield the best long-term results.

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Real Estate

Yes, buying a home is an investment when done correctly.

Imagine buying a home and using it as a rental property. After repairing it, you receive a monthly surplus check of $100 to $200.

This may not sound like a lot, but repeat this process enough times and you’d earn a large amount of passive income. That’s why real estate is one of the best investments to not only retire but become wealthy.

But, it requires a lot of money to start and you should expect losing money along the way as you learn the process.

Savings Accounts

Your money can still grow in a savings account. Nowadays most online banks offer a 2% annual return. Although the average inflation is higher your money will be available when you need it.

7. Master Disincline to Dodge Short Success

Investing for retirement is a long-term strategy. That’s why you need to master delayed gratification. All this means is delaying short-term pleasure for something bigger in the future. Research shows that those who have delayed gratification are more successful.[6]

So how can you master delayed gratification?

By building your discipline.

Think back to what retirement means to you. A clear purpose will help you avoid withdrawing your money during a market downturn. It’ll help you contribute more towards retirement when you’d want to waste it instead.

Your journey towards retirement will be long, so reward yourself along the way. Choose a reward that’s relevant and meaningful, so that you reinforce positive behavior. For example, after contributing more towards retirement, treat yourself to dinner.

8. Aggressively Invest on This One Investment

I’ve mentioned several types of investments but haven’t covered the most important one.

It sounds cliche but here’s why you’re your best investment towards retirement. The more you know, the more money you’ll be able to make. The more good habits you adopt, the more secure your retirement will be.

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More importantly, investing in yourself is an investment that no one can take away. There’s no market downturn nor tragic circumstance that’ll wipe your knowledge and experience.

But, how can you invest yourself?

Reading books, blogs, and anything that’ll help you learn new topics daily. Listen to podcasts and audiobooks on your commute to/from work.

Save money to buy courses and hire coaches. I used to believe hiring coaches was a waste of money when I could learn the subject alone.

But, coaches see your blind spots and hold you accountable. Hiring the right coach will help you achieve your goals faster than you would’ve alone.

Retire Happy with Excess Money

The key to a secure financial future doesn’t only belong to financial experts.

It’s possible for you and I. What if you were able to retire earlier than most people and weren’t a financial planner? What if you were able to focus on what you enjoy doing the most while your money was working hard for you?

I know this sounds impossible now, but the truth is you’re capable of taking charge of your retirement. I’m not a financial expert but I’ve learned how to invest my money by reading books and learning from others.

Investing your money is scary. So start small and invest a small amount of your money with a robo-advisor. Feel your money drop and rise for a month or two. Then, invest more and keep this up until you’re aggressively saving for retirement.

One day, you’ll wake up with a net worth you’re proud of – confident about your retirement. You now know a few strategies you can use to invest in your retirement. Will you take action to retire happy?

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Featured photo credit: Matthew Bennett via unsplash.com

Reference

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