Dealing with the basics of personal finance can be confusing and stressful enough. Having a budget, making sure that your money will stretch to the next pay period and understanding such things as building and maintaining a credit history are all important. In addition to this, there are a few financial questions that many will face that don’t have straightforward correct answers. In many cases, that’s because you need to weigh both a practical and an emotional component. The answer can vary a great deal depending on a person’s individual situation.
Buying or Renting
It used to be one of the best money management tips and conventional wisdom that if you were going to be in a place for longer than a few years then buying was smarter than renting, but is this still the case? Buying is still usually a smart financial decision. Mortgage payments are often substantially less than rent, especially if you can make a bigger down payment. Every time you pay your mortgage, you can think of it as investing in your future. However, buying a home isn’t always the right choice. There are many expenses related to homeownership, including maintenance and insurance.
If interest rates are high or the housing market is hot when you buy and starts to cool, you could end up losing money. Real estate is an often solid but not entirely risk-free investment. Some people want to buy even if it’s not the most financially practical decision because they simply prefer the security of owning their own home. On the other hand, there’s a different security that comes with being a renter and knowing that you aren’t responsible for any major problems and that you can pick up and leave relatively easily. When you’re deciding between renting or buying, take some time to carefully consider your situation and your options.
Cosigning on a Student Loan
You’re relatively financially stable and you have good credit. Someone, perhaps a relative, perhaps even your own child, has asked you to cosign on their student loan. Why would they request this? The reason is that most going to college are young and don’t yet have an established credit history. Without any credit history, it’s difficult for them to get approved for a loan.
This means that having you cosign on the loan could be potentially life changing for them, opening the doors to an education they might not otherwise be able to afford. On the other hand, there are responsibilities associated with cosigning on a loan. If the person stops paying it back, you will be responsible for the debt. There are some questions that you should consider before you say yes or no when someone asks you to cosign on their student loan.
Debt or Savings
When you read financial advice about debt and savings, you might feel as though you’re being told two contradictory things. You are supposed to pay down debt as well as build up your savings. This might sound good on paper, but you may find yourself faced between doing one or the other but not both. How do you choose? As with the other dilemmas above, all you can do is gather as much information as possible and then decide based on that, your personal situation, and your emotions around the issue.
One reason people are often advised to pay down debt first is because the interest rate on debt is often higher than on savings, meaning that if you prioritize savings, technically, it costs you money in the long run. However, if you don’t have any emergency savings, it can be hard or even impossible to get out of debt because every time you have an unexpected expense, such as a car repair, you’re back to using your credit card or another type of loan. The solution in this case might be to first build up a minimal amount in emergency savings, such as $1000, enough to cover a lot of everyday emergencies. Then, you can aggressively pay down debt for a while. You can switch back and forth between the two.
