The Importance of Financial Literacy

The Importance of Financial Literacy

A Q&A Session with Daniel Schlein, Financial Advisor

Q: Is it smarter to buy a home, or rent a living space?

A: The answer to this question really depends on your overall living situation and how you plan to move forward. When paying rent, it goes into utilization; you will not get that money back in the future. Renting represents a convenience factor because you have a landlord to look over your space and keep it free of damages, upon occurrence. If you plan to travel frequently, renting is the ideal living situation.

An example of an idea renting situation is the young adult who travels around the country, even the world, looking for new cities to explore every so often. This person doesn’t want much responsibility with their living space and is looking to spend less. Ultimately, this individual may want to take what they would spend on a mortgage and put it into savings for when they decide to settle.

Overall, mortgages build equity and assets within the real estate market. With buying a home, you can put your personal touch on your living environment. Unfortunately, you will likely put tens of thousands of dollars into renovations and repairs. Renters pay for the space they live in, and never see any money back from that investment. If you plan on travelling frequently, I suggest renting your living space. If you are looking to settle in one spot for a long period of time, I suggest buying a home.

Q: How much do I need to save to fund my retirement?

A: It is best to draw this out as a physical sample. In prior generations, pensions existed.  A pension is a defined-benefit plan that pays a fixed sum regularly to a person towards their retirement. Compared to the standard 401(k), pensions do not have control of investment decisions.  But Pensions are generally better than a 401(k) because investment risk is on your employer, while you are guaranteed a set income for life. 

When saving for retirement, social security comes into play. Social security is a federal program in the United States to provide financial assistance to retirees, their survivors, and workers who become disabled. As of June 2021, about 65 million people received monthly social security benefits. But what happens when that money runs out? This trust fund is planned to run out in 2034. It is possible that future retirees will only receive 78% of their full benefits.

Visualize your retirement as a cake. Pension is the bottom of the cake, and social security is a big chunk, too. 401(k) is the cherry on top, representing 5-10% of the funds. Individuals surviving in their 80s and 90s are still getting paid for living a long time, thanks to Social Security and Pensions. Today’s generation has to build their own pension, being left unsure how much Social Security will be left when we retire. Ideally, an unmarried business professional should save 15-20% of their income for a number of years to come.

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