Adulthood brings with it a lot of decisions that must be made and many of those decisions revolve around finances. Should I work or go to school—which one can I afford? Should I get married and have kids—can I afford that? These are just a handful of the questions young adults are asking themselves in today’s world, but perhaps the most common question being asked is, should I start a business or buy a house?
If you know you want to start a small business at some point, doing it before you take on the financial responsibilities of a home could give you a better chance of success and provide the finances you need to buy a house in the future.
Below we look at the pros and cons of each decision to help you decide which option might be the right one for you.
Buying A House
While the American dream is quickly fading into a fairy-tale, buying a home is still at the top of most people’s to-do list, but is that the wisest way to spend your money?
There are several reasons that you might want to buy a home, including:
One of the most obvious reasons to buy your own house is to claim stability for yourself and your family. Owning your home means that you are not at the mercy of a lease agreement. Nobody can kick you out or sell the home out from underneath you. If you are making your payments on time, you can rest easy knowing that you will never find yourself on the street with nowhere to go.
Your Own Space
Renting, especially renting an apartment, means that you will have neighbors, and this is not always a fun experience. They are paying for their space. That means they have the right to do what they want in that space. Unfortunately for you, this sometimes means playing music at all hours of the night or screaming at each other at one in the morning. Seriously, go to bed!
Additionally, if you have kids, you might find yourself being that neighbor whose child is bugging the others during the wee morning hours. Privacy is important, and owning your own home is a good way to get that privacy.
In addition to privacy, when the house you live in is yours, you are free to make any decorative decisions. If you want to paint the walls bright pink, well, do it!
Part of buying a home is shopping around for the best loan, but it is often possible to lock into a secured interest rate. Contrarily, when renting, you might experience several rent increases, and there is nothing you can do about it but move out.
Although it depends on many factors, sometimes buying a house can be an investment for the future. If you find a great deal on a house that needs a little TLC, you might be able to fix it and flip it for a profit. Additionally, once you own the home, you can sell it and hopefully get most of what you spent on it back. However, if you do not have a strong grasp of local real estate, we would not recommend buying a home solely for this purpose.
While those are all amazing reasons to think about buying a house, there might be some drawbacks as well, including:
Just like a car, houses tend to depreciate. Also, the recent pandemic launched the housing market into a frenzy, which led to crazy bidding wars and often left people paying more for a house than it was valued at. There are ways to avoid this, especially if you have a knack for knowing which properties will appreciate, but sometimes it is unavoidable.
So, it is true that you might not be at the mercy of a property owner or a lease agreement, but that also means that you cannot call your landlord when something goes wrong. Home repairs can pop up suddenly at any time and can be a financial burden if you do not have the extra money in your budget for a $3,000 furnace.
When you own a home, it will be considered an asset. Unfortunately, it is a non-liquid asset. This means that even though it is counted as money you “have”, it is not money you can “access” or spend. Why does this matter? Because if you are applying for any type of assistance, benefits, or financial aid, the value of your home is counted as money you have, which reduces the likelihood you will receive benefits (or will receive reduced benefits).
Starting a Business
As the population grows and positions are sent overseas or lost to technological advancements, climbing your way to a job that offers a stable, livable wage has become more difficult. Because of this, several people have opted to start their own businesses, but is investing in a business a clever idea in 2022?
There are many fantastic reasons to think about starting your own business, including:
When you own your own business, you are your own boss! You set your hours and your schedule. This can be a relief for parents who otherwise struggle to find hours that suit their family needs.
Some of the most successful small businesses were family ventures. Having a family business can mean financial security for many generations to come, and it also means that you share the responsibility. However, it can be hard to work with family, and should only be considered if you know it will not lead to fractions in the family.
For many people, owning a small business might be the only way to elevate themselves out of a minimum wage budget and into financial security. College is expensive, and even after you get a degree, there is no guarantee you will find a decent job in that field. Additionally, with dedication, the right small business can grow in just a couple of years, while it could take 20 years or more to climb the corporate ladder and find that same success.
While there are some good reasons to think seriously about starting a business, there are some disadvantages that come with this decision as well, including:
Starting a business is a lot of work. If you think you can throw a few dollars at a good idea and everything will just sort itself out, you are wrong. Be prepared to spend a LOT of time working in multiple positions. Additionally, it might be a while before you can afford to hire help, so you will be doing everything, from business meetings to scrubbing bathroom floors.
In addition to being a lot of work, starting a business can be confusing. Admittedly, some business types are more confusing to navigate than others but are prepared to learn through a lot of trial, error, and confusion. Even people with business degrees and experience have found themselves making fatal mistakes that hurt their businesses.
Who wants to talk about failure? Nobody. But we would be amiss if we did not mention it. Any start-up comes with the risk of failure. You can have the greatest idea since sliced bread, but without a good business model, location, and dedication, there is a good chance it will not scale or become successful.
At the end of the day, the choice of whether to start a business or buy a home will depend on your personal situation and circumstances. However, if you are going to start a business, it is typically better to do that before buying a home, since starting a business on top of the fiscal responsibility of a home can be difficult.
Just make sure to do your homework before investing money or trying to launch a business. Make sure that there is a need for what you are selling and that there is a place for you in the market—either locally or digitally.
The digital economy has made the possibility of buying a home and successfully running a business from home a practical option. Of course, that will depend on where your particular skills and interests lie, but for some, know that buying a home and starting that business simultaneously is possible.
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