As educational costs have been rising, well ahead of the rate of inflation in recent years the whole question of the value of qualifications has come under the microscope. Is it really worth carrying student loan debt into your 20s as you begin your career with so many calls on your pay check? Many people leaving college move to new cities to begin those careers so there are immediately accommodation issues and it may not be too long with marriage and a family on the way that the question of investing in real estate arises.
Debt and the Real Estate Market
The collective USA Debt on student loans is $1.2 trillion, a figure that is extremely difficult to comprehend. The top 10% owe $100,000 and it is no easy task to clear that level of debt even though the terms and conditions of such loans are fairly flexible. If you add the average level of credit card debt into the equation, over $15,000 on those not clearing their balances in full each months, it is no wonder that the real estate market is apparently being damaged because young people struggle to get to a position where they can buy their first piece of property. Credit card balances can be paid off with a cheaper personal loan but large student loan debt is much more difficult to clear.
There is a counter to the argument that student debt is harming the real estate market however. The Board of Governors of the Federal Reserve System suggests that graduates are actually more likely to get into the real estate market than non-graduates because their income prospects improve. There are often different viewpoints amongst economists of course. Real estate sales in 2014 were over 400,000 below the previous level and that was attributed to the overall level of debt in society with student loan debt amongst the young a major part.
The Federal Reserve Bank of New York said that homeownership post-recession fell by far more amongst the young with student debt than among other sectors. That had not been the case historically. The Governors looked more closely at this and disagreed with its conclusions after gathering credit report data and separating those with no debt, graduate or not. There was certainly evidence that those without debt appeared to enter the real estate market but it didn’t seem that college education was any sort of limiting factor. Indeed the largest gap in home ownership was between those who had graduated and those who had left after high school. Within a little over a decade from graduating those who had obtained better jobs because of their education were more likely to own real estate than non-graduates.
It is far more likely that those who fail in college education and leave mid-course are still renting than those who graduated. Yes, in their case student loans may have been an obstacle because their careers have not gone as well. They will commonly have much lower paid jobs and therefore greater financial problems.
Control and Credit Score
Controlling debt usually involves lifestyle changes. If you have to use your credit card to help you get through the month then you are overspending. Up to a point your credit card can disguise your problems if all you do at the end of the month is to pay the minimum the credit card company requires in order for you to comply with its terms and conditions. Until you reach your credit limit, can’t get an increase and then fail to make the appropriate payments there will be no debt collectors chasing you.
Unfortunately your chances of getting into the real estate market are partly dependent upon your credit score that is a reflection of your history. That changes with each entry, good or bad. It is a slow process to improve a score and carrying credit card debt certainly does not help. Whatever your educational standard you should think about your finances, good or bad and get them in order if you want to be able to obtain a mortgage. The recession caused serious problems in the real estate market; in some areas those problems still remain. However real estate investment in the medium to long term makes good sense and if a college education helps get you on the first step then the price is worth paying.
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Despite less than favourable reports and portents at the start of the year, wage growth is set to blossom and outstrip rent rises throughout 2014. This also means that disposable income levels are likely to rise among British citizens annually for the first time since the Great Recession, which in turn suggests that the UK may be finally emerging from the shadows of debt and financial austerity.
What exactly does this mean for British citizens, however? It is not merely enough to have additional disposable income, for example, especially if you are unable to manage this wealth effectively and translate it into long-term savings. This article will look at how to achieve this, and how to create enough capital to fund big-ticket purchases.
With this in mind, here are 3 practical steps towards saving money and creating wealth for savings, investments and big ticket purchases:
1. Develop a Core Base of Knowledge and Understanding
Your ability to save is often shaped by your level of financial knowledge and literacy, so it is important to learn as much as possible before attempting to build your wealth. This applies to small as well as large details, as it is often the former that can derail your plans and cause you to lose significant sums of money. As a starting point, you may want to consider the impact that fluctuating exchange rates can have on purchase costs, especially when you buy or trade items abroad. This can help you to save considerable sums of money over time and build your wealth organically.
2. Budget in Pence rather than Pounds
Another key step towards successful money management is budgeting, which enables you to calculate your precise level of disposable income and use this productively. When you do begin to budget your income, however, it is important to deal in pence rather than pounds and adopt a precise approach towards detailing each transaction. By using exact amounts rather than generalising and making broad estimations, you can save small amounts of money regularly and develop your financial savings over time.
3. Consider the Role of Investments
The act of saving money must be continuous if you are to accumulate wealth, while you must also be prepared to adapt your outlook as your bank account begin to bulge. Once you have built a solid foundation of income, for example, it may be worth looking to invest some of this so that you can ensure that this money continues to accrue interest and additional revenue over time. This means that while you are continuing to work hard and commit a percentage of your income to savings, the money that you earn is being optimised and delivering the highest possible fiscal return.
These steps are part of a single process that can help you develop a more frugal lifestyle and get the most from your disposable income. Above all else, remember that it takes time to accumulate wealth and that you will need patience, focus and knowledge to achieve your long-term financial goals.
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It’s not easy out there for UK start ups right now. Sourcing business funding is, frankly, a blinkin’ pain – especially for those hoping for conventional funding from their bank. Entrepreneurship is no easy road even when the banks are open for business, but in these tough times, aspiring business owners must work doubly hard to find the funding to get their baby off the ground.
There are plenty of options out there, but none of them are a saunter through the park. Business funding is now available online from Everline, through online crowd funding platforms like Kickstarter or can even be sourced from an angel investor. These routes are not suitable for all businesses, B2B start ups typically fare poorly in crowd funding websites, while angel investors are not always ready to take a leap on an ‘out there’, creative project. If you’re out in the financial cold, but are still passionate about your business, there’s really only one thing for it…Bootstrapping.
What is bootstrapping?
Bootstrapping is a general term referring to doing, well almost anything, yourself without assistance from outside sources. You’ve heard of pulling yourself up by the bootstraps, well now it’s time to take a good hard look at your personal resources and make it happen in business.
Within a start up business, bootstrapping really is an all or nothing approach. It involves putting your own assets into your business – so you really have to be sure that you’ll see a return. However, it’s also a very good benchmark – after all, if you’re not prepared to risk your own finance on your start up, why should an investor? If you’re not confident about what you’re doing, maybe you should stick to the day job…
How to bootstrap
Most entrepreneurs ease their way into this solution, taking the time to evaluate the risks and gradually putting more and more into the enterprise as success becomes increasingly likely. This gives you freedom which straightforward investment simply doesn’t. It also gives you complete control over the initial development of your business – without the interference of investors. Many business owners start by simply ‘financing’ with their own time. Moonlighting on evenings and weekends to grow their new business. This is very hard work, but it ensures there is money coming in, and you’re not risking your future on a pipe dream.
The big steps…
Once success looks close and the day job becomes unsustainable, many entrepreneurs quit and start to think about putting their own finance into the business. Some will remortgage houses, sell cars and max out credit cards to get the business ball rolling, others will approach relatives to find finance.
An interesting idea
One interesting way to free up some capital is to employ staff in return for equity or deferred payment. If your offering is exciting enough to attract employees tempted by this set-up, you’re likely onto a winner. It ensures you team work harder for you than any other staff anywhere else, and it keeps costs down too – what’s not to love?
Know your assets
Of course, the resources available to each bootstrapping start up business will vary considerably from entrepreneur to entrepreneur and this finance really is all about doing it yourself. So look at what you have, and don’t just think in terms of capital, take a really close look at your assets – then focus on turning them into a way to boost your business.
Very good luck, start ups!