2.6.7.

F1

Yourpresentselfimpactsyourfutureself.
Housing,transporta onandfoodcompriseover60%ofspendingchoicesformostpeople.Asaconsumer,youhavearange
ofspendingop onsineachofthesecategories.Decisionsandtradeosyoumakeherewillhaveabigimpactonyour
budgetandwhatyouhavele tospendonotherthings.Takethe metounderstandyourop onsandapplytheplanned
buyingprocess.

Oneofthebiggesthousingdecisionsyoullmakeiswhethertorentor
purchaseahome.Planonspendingabout1/3ofyourincomeonhousing,
whichisjustaboutthena onalaverage.Thesizeandloca onofthehome,
ameni eswithinthecommunityandthelocalrealestatemarketwill
influencetheamountofmoneyyoullspendonyourhousingchoice.

Ren ng Your Home

Rentisthepricepaidfortheuseofsomeoneelsesproperty.Atenantrents
propertyfromalandlord. Thetenantpaysthelandlordrent(afee,usually
paidmonthly)toliveinthelandlordsproperty.Inlargeapartment
complexesorneighborhoodswithlargeinventoriesofsinglefamilyrental
homesyoumayfindyourselfworkingwithapropertymanageroraproperty
managementoce.Theyrethesameasalandlord;theyjusthavemore
rentalproper estomanage.
Informa onaboutexis ngrentalproper esisavailablethroughmanyfamilyandcommunityresources.
Howmuchofyourincomecanyouaordtopaytowardsamonthlyrentalpayment?Herearesometypicalexpensesyour
spendingplanshouldincludewheninves ga ngtherentalmarket.Someoftheseitemsmightbeincludedinthemonthly
rent.
RentYourregularpaymenttoalandlordfortheuseofproperty.
U li esHowmuchwillelectricity,water,andgarbageservice,costyouiftheyrenotincludedinyourrent?
Household furnishingsincludeallitemsthatmakeyourhomehabitable.
Renters insuranceAnop onal(butimportant)purchasethatcoversdamageandorlossofyourpersonalproperty
andliabilityinyourrentalhome.However,itdoesntcoverthelossofthedwellingifitisdestroyedbyfireornatural
disaster.
Communica on expensesincludeinternet,televisionandphoneservice.
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2.6.7.F1

Tobegincomparingrentalproper es,makealistofessen alvs.preferredfeatures.Then,ifpossiblemakeappointmentsto

viewyourfavoriteproper es.Whencomparingproper esitsimportantthatyouaskapoten allandlordseveralques ons:
Rent Howmuchistherent,whenisitdueandwhatpaymentmethodsareavailable.
Length rental contractIsthecontractbasedon12months?Ifyouwanttoshorten

thecontractwillthataectyourrentalpayments?

Dont rent without a rental

agreement A wri en rental
agreement protects the tenant.

U li es Learnwhoisresponsibleforpayingeachu litybill.
Ameni es Determineifanyfeaturessuchasfurniture,appliances,onsitelaundryoracommunitypoolareprovided

andifso,whetherthereisanaddi onalchargeforusage.
Repairs and maintenance Ifthedishwasherleaksorthefurnacestopsworkingareyouresponsiblefortherepairs?
Findoutwhatmaintenanceiscoveredunderyourrentalagreementandtheassociatedfeesforrepairwork.
Policies Canyoulivewitharestric onthatsaysnoovernightstreetparking?Doyouhaveapetandwanttobringitto
yournewhome?Whatifyouliketogrillout?Checktoseeiftherearerestric vepoliciesrelatedtothequalityoflife
youdliketolive.Besuretoaskforawri encopyofallrentalpoliciesandrestric onsbeforesigningalease.
Landlord/Property Managers Access Rights to the PropertyUnlessitsanextremeemergencyyourlandlordtypically
mustgiveyoua48hourno cepriortoenteringyourrentalhome.Thisvariesfromstatetostate.Makesuretoread
andbecomefamiliarwithyourrights.
Evic on terms Understandyourrightsandthepoliciesassociatedwithalandlordscausetoevictyoufromyourrental
property.
Fillingoutarentalapplica onispart
Ifyouareapprovedtorentapropertymakesureyoureceivetherental
oftherentalprocess.Youmaybe
agreementbeforeprovidinganydepositsorrentpayments.Arental agreement
askedtoverify
(alsoreferredtoasalease)isacontractspecifyingthetenantsandthe
Whowillbelivingatthe
landlordslegalresponsibili es.Arentalagreementisacontract.Oncesigned,
property
youareresponsibleforthetermsofthelease.Examinetherentalagreement
Yourcurrentandpastemployers
closelymakingsureitclearlyoutlinesinforma onaboutexpensesandpolicies.
andyourincome(dontbe
Therentalagreementistheretoprotectyouandtooutlineyourlegal
surprisedifthelandlordcontacts
responsibili esasatenant.
youremployertoverify)
Yourpreviousrentalhistory
Youmightbesubjecttofinancialpenal esshouldyoubreakanyofthetermsin
yourlease.Mostrentalagreementsstatethatthetenant(you)willpayrentfora
specificamountof me,usually12monthsfromyoursigningdate.Ifyoubreak
therentalagreementbeforethecontractual meperiodisover,youllprobably
havetocon nuetopayrenttotheendofyourcontractorbeassesseda
penaltycharge.Checkyourrentalagreementanddontassumeanything!

Youllmostlikelyalsobeaskedto
supplyaddi onalcharacter
referencesandapproveyourfuture
landlordsrequesttopullyourcredit
reports.

Whenren ngahome,youmayhavesomeini alexpensestopaybeforemovingin:

Remember, your credit history

aects more than just credit. It
can also influence if a landlord
will rent a property to you.

PrepaymentYoumayberequiredtopaythefirstandlastmonthsrent

immediatelyuponsigningyourrentalagreement.
Security deposit Thisismoneyyoupayyourlandlordtocovercleaningcosts
whenyouleaveyourunitattheendofthelease,aswellasanydamagesthe
propertysueredduringyouroccupancy.Damagerepairstobechargedagainstyourdepositmustgobeyondnormal
wearandtearofarentalproperty.Ifyoupaidanaddi onalmonthsworthofrentuponsigningyourini alcontract,
yourlandlordtypicallyhasonemonthtoreturnthosefundstoyou.However,partorallofthatdepositwillbe
withhelddependingonthecondi onofthepropertyuponyourdeparture.Ifyourlandlordholdsbackfunds,he/she
mustpresentyouwithawri enlistofthedamagesandtheamountofmoneyneededtocleanandmakerepairs.Ifthe
depositislargerthantheamountrequiredforrepairsandcleaning,thelandlordmustreturntheexcess.
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Home Ownership

2.6.7.F1

Homeownershipprovidesabroadrangeofbenefitsincludingprideofownership,taxbenefits,andtheopportunitytobuild
equity.Equity isthemonetaryvalueofapropertyminustheamountowedontheproperty.Buildingequityinyourhome
over mewillincreaseyournetworth.However,ahomepurchaseandongoingcostsofhomeownershipalsoinvolve
expensesthatyouwouldntnecessarilyhaveifyoudecidedtorent.Ahomepurchaseisacomplicatedtransac onand
representsoneofthelargestsingleinvestmentsyoullmostlikelyevermake.
Oneofthefirststepstotakeasapoten alhomeowneristofindagoodrealestateagent.A real estate agentisalicensed
individualrepresen ngabuyerorsellerinacontractualtransac ontopurchaserealproperty.Theagentshouldbe
someoneyoucanrelateto,someonewhounderstandsyourneedsandhastheexper seandknowhownecessarytohelp
youfindtherighthomeforyou.Alargepartofarealestateagentsjobistohelpguideyouthroughthecontractand
closingprocess.
Fewpeoplecanbuyahomeforcash.AccordingtotheNa onalAssocia onofREALTORS(NAR),nearlynineoutof10
buyersfinancetheirpurchase,whichmeansthatvirtuallyallbuyersespeciallyfirst mepurchasersrequirealoan.1To
obtainaloanyoullhavetofilloutaloanapplica onandprovidesuppor ngdocumenta on.Youllbeaskedtosupplypay
stubs,rentalchecksandpasttaxreturns.Loansareobtainedthroughmortgagebankers,mortgagebrokers,savingsand
loanassocia ons,commercialbanks,creditunionsandinsurancecompanies.
Ifyoufinance(borrowmoney)yourhomepurchaseyouwillenterintoaloancontractagreeingtorepaythesumofmoney
borrowed.Aloanforthepurchaseofrealestateiscalledamortgage.Amortgageisaspecialtypeofloanthatisbackedby
thepropertythatitisusedtopurchase.Underamortgagecontract,thepropertyisconsideredcollateralontheloanand
thelendercantakebackthepropertyifyoudonotrepayasagreed.Therepaymentperiodformosthomepurchaseloans
iseitherfi eenorthirtyyears.
What can you begin doing today to qualify for a home loan with favorable terms?

Usingamortgagetopurchaseahomewillinvolvetwolargeini alexpenses.
Down paymentisthepor onofthepurchasepricethatisnotborrowed.Amortgagedownpaymentistypically5

20%ofthepurchasepriceofthehome.Ifyoucantaordafull20%downpaymentonahome,thenthelenderwill
typicallyaddmortgage insurancetothecontractandincludethecostaspartofyourmonthlymortgagepayment.
Alsoknownas"PrivateMortgageInsurance,"PMIprotectsthelenderincaseyoucantmakeyourmortgageloan
paymentsandthelenderhastotakethepropertybackthroughaprocessknownasforeclosure.2Inthatevent,the
insuranceproviderwouldreimbursethelenderforanylossduetoyourfailuretorepayasagreed.Lenderso en
requirePMIifaborrowerprovideslessthana20%downpayment,becausetheseloansareconsideredhigherrisk.The
PMIpaymentisusuallypaidmonthlyaspartoftheoverallmortgagepaymenttothelender.
Closing costs arefeesandchargesassociatedwiththepurchaseofaproperty.Theexactamountdependsonseveral

variablesbutcanbe14%ofthepurchaseprice.

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2.6.7.F1

Inaddi ontopayingdowntheprincipalandinterestonyourmortgageloan,yourmonthlymortgagepaymentwillalso
includeanamounttocoveryourpropertytaxesandhomeowners insurancecosts.Homeowners Insurance covers
damageorlossofthestructureandcontents,plusyourliabilityincaseothersareinjuredonyourproperty.Most
lenderswhoprovideamortgagerequiretheborrowertopurchasehomeownersinsurancesucienttocoverlossofthe
structure.
Otherhomeownershipexpensesinclude:
U li es
Householdfurnishings
SpecialAssessmentsfeescollectedbythelocalcitygovernmentforu li es,
roadmaintenanceandotherservicessuchasfireprotec onandstreet
ligh ng.
HomeownersAssocia onDuescondosandresiden alcommuni esmay
chargemonthlyoryearlyfeesthroughaHomeownersAssocia on(HOA)that
willpayforthemaintenanceofsharedareasandnecessaryrepairsthroughout
thecommunity
Communica onexpensesincludinginternet,televisionandphoneservice

Thecurrentmarketvalueof
yourhomeisconsideredan
assetonyourStatementof
FinancialPosi on.However,
ifyouuseamortgageto
financethepurchaseofthe
home,theremaining
balanceonyourmortgage
loanisconsideredaliability.

Theaveragepersonspends17%oftheirincomeontransporta on.Asa
consumeryouhaveseveraltransporta onop ons.

Public Transporta on
Someci eshavelimitedpublictransporta onop ons(taxi,subway,bus,light
rail)andeveninci eswithwelldevelopednetworks,notallareasare
coveredequally.However,ifpublictransporta onisavailablethismaybethe
mostcosteec veop onbecauseitdoesntrequireyoutopaythecostsof
maintenanceandrepairsassociatedwithvehicleownership.Thecostofusing
thedierentmodesofpublictransporta onvariessignificantly.Somepublic
transporta onsystemsoerpasses(usuallymonthlyoryearly)tohelpreduce
auserscost.

Purchasing an Automobile
Whenpurchasinganautomobileyoulldiscovertherearetwomainsourcesofinventory:anautomobiledealershipand
vehiclesoeredforsalebyotherconsumers.Dealershipssellavarietyofnewandusedautomobiles.Privateownersusually
sellpreownedvehicles.

Amajordecisionyoullmakebeforepurchasingyourautomobileiswhetheryouwillbuyneworused(alsoreferredtoas
preowned).Beforeworkingwithsalespersonnel,itisimportantthatyoucarefullyevaluateyourneedsandwantsto
understandwhatvehicleop onswillmeetyourlifestyle.
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2.6.7.F1

Herearesometypicaltransporta onexpensestoconsiderpriorto
purchase:
Automobile loan paymentIfyoufinanceyourpurchasewhat

isyourrequiredloanpayment?
Fuel costsThisexpensewilldependonvehicleperformance
andhowmuchyoudrive.
Maintenance and repairsDoresearchtoes matethecosts
associatedwithnormalwearandtearbasedonhowmany
milesyouexpecttodriveperyear.Keepinmindthatsome
vehiclemodels(especiallyforeignimports)aremuchmore
expensivetomaintainandrepairthanothers.
License and registra on Thisisayearlyfeeandvariesgreatly.
Insurance Yourage,sexandpriordrivingrecordallinfluence
thiscost.
Parking Ifyourplaceofemploymentdoesntprovidefree
parkingduringyourworkdayhowmuchwillonstreetparkingor
alocalparkinggaragecost?

Costsassociatedwithvehicleownershipvary
dependingonthemakeandmodelofyour
automobileandhowmuchyoudriveit.
Newerautomobileshavehigherlicenseand
registra onfeesthanolderautomobiles,but
olderautomobilesmayalsocostmoreto
maintain.

ConsumerReports
providesunbiased
informa oncomparing
vehiclefeatures,pricing,
safetyra ngsandmuch
more.

KellyBlueBookCosttoOwn(h p://www.kbb.com/newcars/totalcostofownership/)isanonlinees matortoolthat

helpsyouunderstandhowmuchitcoststoownandoperateavehicleandhowmuchmoneytoallocateinyourspending
plan.

Thecurrentmarketvalueofanautomobileisconsideredatangibleasset(propertypurchasedtocreatealifestyleor
improveyourpresentlife)onyourStatementofFinancialPosi on.Eachyearthevalueofyourautomobilewilldecrease.
Thisisknownasdeprecia on(decreaseinthevalueofanassetassociatedwiththedeclineinitsremainingusefullife).
Thedeprecia onratedependsontheageofthevehicleaswellasitsmakeandmodel.Ifyouusedanautomobileloanto
financeyourpurchase,theremainingbalanceonyourloanisaliabilityonyourStatementofFinancialPosi on.

Dependingontheamountborrowed,thecarmaydepreciatefasterthanyourloanbalancedeclines.Ifthecarsvalue
becomessmallerthantheremainingbalanceonyourloan,youareconsideredupsidedownwithyourloan.This
doesntposeanimmediateproblem,butcouldpresentanobstacletosellingortradingyourcarforadierentmodel,in
whichcaseyouwouldneedtopaybackthelendermorethanyouwouldreceivefromthesale.Youcanreducethe
likelihoodthatyoullhaveanupsidedownperiodduringyourloanpaybackifyouroriginalloanhasashorterloanterm
(forexample,48monthsinsteadof60months)and/oralargerdownpayment(forexample,20%insteadof10%).
What features would you want in an automobile?

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2.6.7.F1

Knowwhatfeaturesyouwantinacarandtheaverageprice
forthatvehicle.Thiswillhelpyounego atethebest
Cost
Size
Usage
possibleprice.

Examplesoffeaturesthatmaybeimportanttoyouinclude:
SafetyRa ngs
GasMileage
Cost whatcanyouaord?
Reliability
Size howmanypassengerswillthiscarcarry?
Usage howwillyouusethisvehicle?
Gas mileage WhatstheaverageMPG(milesper
Upgraded
Environmental
Deprecia on
gallon)?
features
Impact
Safety ra ngs Howsafeisthevehiclecomparedto
othermodels?
Reliability Howreliableisthevehicle?Whataretheaveragemaintenanceandrepaircosts?
Environmental impactDoesthemodelhavefeatures(otherthanfueleconomy)thatreduceitsenvironmental
impact?
Deprecia onHowquicklywillthevalueofthevehicledepreciate?Whatdidyoulearnfromyourresearch?
Upgraded featuresWhatupgradedfeatureswouldyouconsideraddingtothepriceofyourpurchase?Whatare
someupgradedfeaturesyoucanlivewithout?

Using Credit to Make Your Purchase

Automobileloansareavailablefromdepositoryins tu onsorautomobiledealerships.Mostlenderscheckyourcredit
historytodeterminewhetheryoucanqualifyforaloan.Loanratesvarysignificantly,soitisimportanttoshoparoundin
advanceofnego a ngyourpurchase.
Mostlendersrequireadown payment(thepor onofthepurchasepricethatisnotborrowed)bemade.Thedown
paymentamountdependsonmanyfactorsincludingthepriceoftheautomobileandthelendersspecificterms.Ifyouplan
tosellyourcurrentvehicleandusethemoneyfromitssaleasyourdownpayment,researchyourvehiclesworthin
advanceofworkingwithadealership.Thishelpsdeterminewhetherthedealershipisoeringagoodtradeinvalueforyour
vehicle.Youmightconsidersellingitonyourown.Ifyouaretradinginyourvehicle,nego atethevalueofthetradein
separatelyfromnego a ngthepriceofyournewvehicle.
Ifyouarebuyinganewautomobile,youmaydecidetolease.Leasingisren ngaproductwhileownership tleremains
withtheleasegrantor.Inatypicalautolease,youpayaspecifiedamountofmoney(usuallymonthly)duringthelifeofyour
lease(forexample,36months).Oncetheleaseexpires,theautomobileisreturnedtotheleasegrantor(lender).Some
leasesallowforpurchaseofthevehicleforanaddi onalcostatthe metheleaseexpires.Thisamountisusuallyspecified
inadvanceaspartoftheoriginalleasecontract.Ifyouareconsideringleasinganautomobilemakesuretocarefullyread
thecontracttolearnexactlywhatyouarerequiredtopay.Makesuretolookforanypenal esassociatedwithusagesuch
asaddi onalchargesyoullhavetopayforexceedingtheallo edmiles.
Be careful If you do not have
an adequate down payment or
favorable credit terms, the
value of your vehicle could
instantly be less than the loan
amount because of
deprecia on.

Dont drive the car home

before the financial
paperwork is complete.

Websites such as Kelly Blue

Book and Na onal Automobile
Dealers Associa on provide
valuable informa on about
vehicle worth, typical cost of
ownership and much more.

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2.6.7.F1

Theaveragepersonspends13%oftheirincomeonfood.But,foodcostscan
varywidelyacrossindividuals,largelydependingonhowo entheyeatmeals
awayfromhome.And,unlikehousingandtransporta onexpenses,food
purchasedecisionsaremadedailyandaresuscep bletoimpulsebuying.A
$4la eonceinawhileisapleasantindulgencethatmakeslifemore
sa sfying.Adaily$4la ehabitcanbeanexpensiveburdenonyourmonthly
budget.OnceyouhaveallocatedmoneyforfoodinyourSpendingPlan,the
taskofstayingwithinaspecificdollaramountbecomesthegoal,andthe
crea onofnutri ousmealsforaperiodof mebecomesthechallenge.
Thesedecisionsarehighlypersonalandspecifictoindividuals.But,generally
speakingyouhavetwoprimaryop onsfromwhichtochoose:
PreparingfoodathomeThisisaformofhouseholdproduc on.You

useyour meandresourcestopreparemealsratherthanpurchase
them.Timecostsareimportanttoconsider,inaddi ontofinancialcosts.
Someconsumershavelimited meandpreferitemsthatrequireless
prepara on,althoughreadytoeatmealsareo enmoreexpensive.Thisisagood
exampleofhowmealsposeadailytradeo:forthismealdecisionissaving memore
importantthansavingmoney?
FoodawayfromhomeEa ngawayfromhomeincludesavarietyofop onsthatvary
significantlyinprice.

What are two things you

can do to minimize your
food expenses?

Whenthinkingaboutthebudgetaryimpactofyourfoodop ons,keepthe
followinginmindregardinghowpriceincreasesacrossop ons:
Fastcasual
restaurants

Readytoeat

Scratch

Convenience

Fastfood
restaurants

Fullservice
restaurants

InInaddi ontocost,considerthefollowingfactorstoincreaseyouroverallwellbeing:
Nutri onalvalueEvaluatethenutri onalvalueoffoodpurchasedandconsumed.Trytoeat

awellbalancedmealhighinnutri on.Therearemanyresourcestohelpplannutri onal

mealssuchasMyPlate.
TimeHowmuch medoyouhaveforprepara on?
SkillsDoyouhavetheskillstopreparemeals,orareyouinterestedinlearningfromothers?
Facili esandequipmentIsyourkitchenequippedwiththenecessaryappliances?
Allinall,whenmakingfooddecisionsmakesureyouareworkingwithinyourspendingplanandea ngnutri ously.
1.
2.

Na onalAssocia onofREALTORSh p://www.realtor.org/

Investopediah p://www.investopedia.com/
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