10/21/2022
What is wealth? Well, in personal finance, wealth is simply defined as the value of all your assets.
But how do you measure wealth? You take the value of all your tangible and financial assets (your house, your car, your retirement accounts, savings etc.) and then subtract any debts you owe.
When you look at wealth through this lens, it seems far less out of reach. Wealth is no longer a privilege of the rich and famous but now is simply a financial goal with a road map on how to achieve it.
Historically speaking, owning a home is a great catalyst to financial wealth.
Now obviously, without a crystal ball, it’s impossible to predict what your home purchase is going to do for you in the future but there are many historic indicators that show how homeownership directly relates to wealth.
1. Stable Housing Payments: it’s no secret that rent prices fluctuate often.
Having a consistent mortgage payment helps you to plan out your finances so you know how much you can invest in other wealth-growing vehicles, such as a retirement plan.
2. Home Appreciation: While the housing market may be unpredictable, especially now, historically it has yielded solid results in the long term.
American homes tend to almost double in value over the course of 10-20 years.
3. Tax Advantages: Do you itemize your taxes? If so, you may be able to deduct your property taxes, your private mortgage insurance (PMI) as well as your mortgage interest.
You can also potentially qualify for tax credits if you are a first-time home buyer or make energy-efficient improvements to your home, such as solar panels.
4. A Hedge Against Inflation: What is inflation? Well, the short of it is, Inflation is what occurs when the cost of living goes up faster than wages.
When inflation soars, the cost of everything goes up including housing.
If you have a locked-in interest rate, you don’t have to worry about housing costs rising.
You are also investing money into an asset that tends to appreciate over time.
5. Equity: What is equity? Well, if you missed our post then you probably don’t know that equity is the difference between what you owe on your home and what it is worth.
When your home rises in appreciation over time, it stands to reason that as you pay off your mortgage, your equity increases as well.
