Budgeting & Real Estate: Impact, Tips, Detail
- Adam Garrett
- Jan 15
- 6 min read
Updated: Jul 23
Here I share about budgets in general in addition to the positive impact that homeownership can make to help many save more and invest more. Sometimes renting is a better fit, but it's important to look at the facts to be sure before renting, even if homeownership seems impossible. No matter how much or how little your income is, your financial growth, even your giving potential, will be forever limited if you don't first limit yourself with a budget. The ability to invest is catapulted by good budgeting. Without good budgeting, it's easy for years, especially younger years, to pass by without nearly the assets built up that one would be more intentional about if they were to do it again looking back.
Budgeting Overview:
Can those of low-income budget?
Absolutely. In fact, children should begin budgeting at a very young age, and parents would do well to teach them wise financial habits like budgeting, with poverty as well as high income being a highly generational problem or benefit based in part on the actions of parents and grandparents as well as what they teach the future generations.
Most of the world has a lower average and median income than the US. Typical low income in the US would be considered a high income in some countries like South Sudan, where the 2024 GDP per capita is a mere $455 (compared to $85,373 in the US per Global Finance). And yet, people making much less than people here, with much more limited opportunity, are able to do things like save up to buy a car in cash & more.
Also, those with low income in the US have some of the best opportunities for savings by % available. For instance, the Saver's Credit is only available to those of mid to low income, & Roth IRAs aren't available to the rich. The Saver's Credit "helps taxpayers offset a portion of the first $2,000 ($4,000 if married filing jointly) they voluntarily contribute to Individual Retirement Arrangements (IRAs), 401(k) plans and similar workplace retirement programs." It provides up to a 50% credit, which means that for every dollar put into one of these IRAs or 401(k)s up to the cap, taxes can be reduced by up to 50%! That's savings on top of any 401(k) employer contribution and isn't limited to employer-based retirement plans since it's an option with IRAs as well. That means that if adding to a 401k with a 50% match of your employer, it's almost like getting an up to 100% total match since you could put that 50% extra credit right back into an IRA or Roth IRA if you wanted to and haven't met your cap for the year.
Is low income the biggest problem?
Typically not. While there are some exceptions (i.e. those in slavery, those who are quadriplegics, those who are severely mentally handicapped, & those born in countries of very low income who never get the opportunity to move somewhere better), the biggest problem fuels low-income as well as other bad financial habits. The biggest problem is the lack of effectual wisdom on finances including the self-discipline necessary to rapidly grow financially.
While a low income has a dramatic impact on budgeting, and increasing your income legally and ethically should be a high priority if you're low income, it's important to keep in mind the following:
"Low income is not always to blame for financial hardship. Only 1 in 5 people (20%) facing financial hardship fall below the poverty line and make less than $40,000 per year." https://www.debt.com/statistics/
What's the biggest budgeting problem? Most don't budget.
The biggest issue with budgeting is that most people don't budget, and if they plan out a budget, they don't stick to it. Besides that, some of the biggest budgeting issues that people typically don't save or invest enough, while they overspend on the major average expenses, like housing (especially renters) & transportation (especially those that buy vehicles new &/or with financing & those that lease). Many people I talk to are car poor or house poor. The average American also carries a balance on his credit cards. Bad credit can also have a very negative impact on budgeting, increasing insurance costs & interest rates on housing, transportation (if not buying in cash), & otherwise. Besides those 2 things, many people commonly overspend on their food, clothes, & certain items that are not necessary. For those that smoke, drink alcohol, or do drugs, many also spend quite a bit on those items as well, not to mention the higher health costs for those that smoke, do drugs, & drink a lot. A low amount of red wine can have a positive impact on health but overdrinking & smoking are part of what made me never know my grandfather.
Overspending on transportation
In our experience buying older, low mileage, low depreciating, reliably rated vehicles (such as Subaru, Toyota, & Honda w individual reliable ratings as well for the specific vehicle) with high MPG that are relatively cheap without too many fancy amenities in cash, then taking them to honest repair shops including but not limited to for all the inspections, is the way to go.
How much do I need to save/invest?
If you don't have any savings, it's best to start with Dave Ramsey's baby step 1 recommendation of $1k, but a big part of Dave's advice is to get out of debt via the debt snowball next in baby step 2 before getting more savings in baby step 3. The small nature of the $1k should help incentivize you getting out of debt fast because of times when only $1k would cause a hardship.
Forbes shares a graph from Fidelity of how much you should have saved in a bank & for retirement per your age, with the biggest time to save being starting early to get compounding interest going and in your prime years, from 40-50:
Age | Multiple of Annual Salary Saved |
30 | 1X |
40 | 2X |
45 | 4X |
50 | 6X |
55 | 7X |
60 | 8X |
67 | 10X |
Free classes, web tools, &/or personalized budgeting assistance:
If looking for a non-profit financial counselor, select "Managing or Budgeting Your Finances" on HUD's Housing Counselor Finder page.
Options in Hampton Roads:
The closest offices for many are in Chesapeake & Newport News
Call (757) 484-0703 to schedule a budget counseling session
Disclosure
The content on this site is not provided by a bank or issuer. Opinions expressed here are author's alone, not those of a bank or issuer, and have not been reviewed, approved or otherwise endorsed by a bank or issuer. Adam Garrett, the author, is not a CPA nor a financial advisor.
Budgeting & Real Estate:
Impact of home ownership on budgeting
The savings of home-ownership are an excellent way to fund savings and investments, and are better than any other way that I know of that are lawful and culturally acceptable despite my extensive knowledge on savings. At the same time, you’re investing into a property.
While rents tend to increase over time, owning a home at a fixed-rate mortgage or fully outright tends to not increase nearly as much over time.
Part of your payment goes directly toward your debt principal. While your debt principal goes down over time with a traditional mortgage, your home's worth tends to go up over time, increasing your net worth.
Step 6 of Dave Ramsey's 7 baby steps is to pay off your house. Once that's done, especially if completed long before retirement, many can save and grow in their net worth like never before.
How high of an income do you need to purchase a home?
How can someone during my career with an income of less than $750/month, who wanted a house instead of the never-ending rent cycle, be in a position to buy a house? They budget decently & don't take on too much debt. Also, government grants and programs like the USDA direct loan with 1% interest and a 38 year loan are very helpful. Even with an interest rate closer to normal, they could still get a house. They purchased a house & are paying significantly less in their monthly mortgage today than what they used to pay in rent. They also no longer have to deal with a landlord who didn't like to fix anything.
Tax & Benefit Implications of Home Ownership
For those paying taxes, every extra dollar saved is more valuable than every extra dollar earned.
Especially for those not taking the standard deduction, mortgage interest tax deductions can be a substantial part of your deductions.
While state policies vary, home-ownership has protections that many assets, including even cash value whole life insurance policies in some cases, don't have when it comes to benefits like:
"Resources are things you own such as:
Cash;
Bank accounts:
Stocks, mutual funds, and U.S. savings bonds;
Land;
Life insurance;
Personal property;
Vehicles..."
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