Tucson Association of REALTORS® - Consumer Jungle Essay Contest - Spring 2012 Winner – Trace Bartels – Tanque Verde High School
Financial success can be hard to achieve, yet it is not impossible if one follows the four key steps. These four steps will lay the foundation for a financial future. It is important though, to follow these steps as the foundation of any building is the most crucial component, if it is built wrong the building cannot stand. Following the steps of budgeting/saving, credit, renting, and homeownership will pave the way for prosperity.
Before any action, there should be a well thought out plan, a blueprint. In financial terms, this plan is budgeting and saving. Budgeting is planning on how to organize the money, income and expenses that one will experience. Saving is a part of budgeting. Ideally, one should follow the 70-20-10 rule or of one’s income, 70% is spent, 20% is saved, and 10% is invested. Saving is preferable over investing as saving is absolute while investment carries a certain risk. One should also start an emergency cash fund of at least $1000 dollars, for medical expenses, car repairs, or other unexpected expenses. Through budgeting one can avoid a net loss, when expenses exceed income, and achieve a net gain. This net gain can then be used to pay things off and avoid loans and interest that can be costly in the long run. These are the first crucial steps in financial success.
The next step involved building one’s credit, by acquiring one’s credit score through a reputable source, not from a commercial with catchy lyrics. Credit is comprised of the “5 C’s”, or character (reputation), capital (available money), capacity (means), collateral (security), and conditions (circumstances). These divisions of credit will determine if one gets a loan and for how much, making good credit very important to obtain and maintain. It takes 2 years for good credit to be achieved but only 31 days to destroy this credit.
Renting is important on the path to homeownership and financial success as it builds credit. Before renting, one should access their needs (absolutely necessary for survival) versus wants (something desired). These will determine what and where one should rent. Ensure that cost of renting per month is feasible and if sharing the cost with a roommate, make sure the roommate is reliable, even if it’s a best friend. Make sure to read the contract and make sure everyone knows what they’re getting into. Renting is a good way to build credit but it can also destroy credit if one or their roommate fails to pay the rent.
Buying a home is much like renting, except the financial burden is much greater and what homes can be for a lifetime, not a short term lease. Needs and wants should be accessed when buying a home. Find a good Realtor as they will be your advocate and help you through the process. Make sure the home is with one financial means. These steps are crucial to financial success but also to make life enjoyable.