You’re young, carefree, and the world is your playground. You’ve got years before you need to start worrying about big, serious money goals like buying a house … right?
Sorry to kill your buzz, but if you think you’ll be interested in owning a home anytime in — oh, the next decade or so — then now’s the time to start saving for it. But don’t just take my word for it: listen to the numbers.
The National Association of Realtors recently reported that it takes an average of 12.5 years for first-time buyers to save enough for the recommended 20% down payment. Let me repeat: 12.5 years. You could raise an infant into a pouty middle schooler in that amount of time (but we won’t go there).
If you’re planning on buying a house anytime within the next decade, think twice about extending a #YOLO attitude toward your finances.
Boo! You’re no fun.
I know, I know. You work hard for your money, you’re probably not getting an enormous amount of it at this point in your professional life, and sometimes you just need to let it all hang out at happy hour. (Your money, I mean. Whatever else you’re letting hang out at happy hour is your own business.)
But — and I hate to sound like your finger-wagging parents here — playing fast and loose with your money now could come back to haunt you down the road. Saving for a home is obviously tough, and not being in control of your money won’t make it any easier for you.
I’m looking out for your ultimate happiness here. (Which sounds very parental, but parents do hit on the truth now and then.)
So what does this mean for you in the here and now? It means it’s time to start taking your finances a bit more seriously. You don’t need to cut out all fun, but maybe stop the “window-shopping” at that one store that always leads to impulse purchases. Drive a beater car for a little longer. Come up with a budget that includes space for savings. Spend one or two weekends per month waiting tables, walking dogs, or baby-sitting, and devote those paychecks toward your down payment stash.
And it should go without saying, but check your credit score at least once a year.
Learn those dreaded acronyms and abbreviations
When you’re ready to start thinking about home buying, take the time to understand “boring” topics like adjustable rate mortgages so you know what you’re getting into.
In fact, we’ll introduce you to a boring abbreviation right now: PMI. This stands for “private mortgage insurance,” and it’s an additional fee that typically costs between $500 and $1,000 per year for every $100,000 worth of home you purchase. If the nationwide median price of an existing single-family home is $200,000, that means PMI will swipe an extra $1,000 to $2,000 from your pocket every year.
But people who save a 20% down payment don’t need to purchase PMI. If you can cobble together the savings, you’ll score a “get-out-of-jail-free” card. Then you can spend that extra $2,000 per year on the latest iPad/iPhone/iWhatever, swanky clothes, and bachelor(ette) parties in Vegas.
Will it be superfun to be financially responsible? Not necessarily. Will you get envious sometimes of your friends who are living it up while you diligently put away money for the future? I won’t lie and say you won’t.
But remember that soon enough, you could be signing on the dotted line for your dream home with the warm, cozy security of knowing you can definitely afford it. And your friends will be wondering how the heck they got into so much debt and how long they’ll have to cram themselves into a studio apartment before it’s all paid off.
Sometimes, a little responsibility now leaves room for a lot more fun down the line.
Treat your money well and it will treat you right
You may only live once, but that doesn’t mean living only in the present. How you spend your money now has an impact on how much money you’ll have for all those big things you’d like your future to hold, whether that’s a home, a wedding, a family, or becoming a sheepherder in Peru. (It’s your life. I won’t judge.) You owe it to yourself to lay the foundation for an awesome financial future.
Lecture over. You are dismissed. Now go play outside or something.