The evolving nature of homeownership in the modern world: A more-complex and expensive existence and the proliferation of boomerang children
The American Dream: Owning your own home
Buying a house is a critical step in most adults' lives in the western capitalist world. Still, we've seen a lot of changes related to homeownership and when homeownership happens over the last century. The way things are now from a home-buying perspective is not how they've always been. In fact, the way things are today is very different than they've ever been in human history.
Family life and real estate have changed after the Industrial Revolution
Before the Industrial Revolution, the world was very different than it is no. People lived in small communities, traveled very little, and interacted with less than a few hundred people over the course of their entire lives. A man leaving his home go out on his own would rarely have seemed like a prudent decision - how would he and his family survive without kin? A woman leaving her home alone to go out and make something of herself in the world? This was a non-starter in a non-capitalist and agricultural world when kinship and ancient communal ties kept you safe, fed, and busy.
In the 21st century, real estate traditions and family life evolved further: The rise of the boomerang child
Over the last century, as the western world (especially the US) modernized, it became typical for young men and women to leave their parents' home when they turned 18 - this usually coincided with the start of a college education. Not everyone had the opportunity or the desire to leave home in this way, but many did, and this phenomenon increased over time.
In the early 21st century, further shifts and refinements to this novel paradigm occurred. A combination of factors, including the following
In today's world, students leave at 18 for college, but typically either return home or need some extra support from their families even after they graduate. The idea of being able to leave home at 18 and have an economy that is able to provide enough income for you to do that in a separate housing unit is a bit wild - only economies that are growing substantially can support that sort of lifestyle. A more reasonable lifestyle is staying within the parental unit, at least in part, until you develop enough skills, income, and savings to be able to go out on your own and be a productive part of the global economy.
A lot of people, however, never develop the needed skills or the required savings and income to go out on their own. This is something that has been increasing. You can now easily find people in their late 20s living at home and even people well into their 30s. In 1950, if a 35-year-old man was living at home without a family of his own (and he came from a typical middle-class family), it would be a pretty big negative for him.
Maybe boomerang children aren't so bad? Towards a healthier perspective on modern real estate and modern family life.
Many people talk about the second shift (the one from leaving at 18 for good to the more complex current situation), but not a lot of people talk about the first. You won't see articles in the financial news and financial media talking about how interesting it is that society has changed so much. Still, you'll read about boomerang children and college-education coffee makers all the time on popular financial websites.
We've got to do a better job of putting things into perspective and understand that just because things were a certain way for a bit of time (maybe a few decades), doesn't mean that's how they've always been or how they should be. Perhaps it makes more sense for families to be tighter knit from a financial perspective. Maybe it doesn't. Either way, assuming something without taking a broader perspective is both narrow-minded and will prevent you from making some interesting and potentially useful insights.
Some of these insights might include the following:
Economic recoveries and bull markets move slowly; recessions and downturns move fast. So, be prepared...
Do you think that once a recession looms on the horizon, you'll be able to make preparatory moves to sustain your financial investments and your portfolio? If so, you're probably wrong. You're taking on too much risk and not effectively managing the risk within your portfolio and your financial life if you naively think that pre-recession prep isn't necessary.
Recessions come too quickly for most people - it'll probably be the same for you
Too often, people fail to take prudent steps to prep for recessions, market corrections, or economic downturns - they think they'll see the signs close to it and will be able to make the needed financial adjustments. This is incredibly hard to do, however, and most people fail at it.
The main reason it's hard to do is that, unlike economic recoveries and expansions, recessions come quickly and don't tend to give warning signs until after things are already bad (so, they're not really warning signs in this case).
There's too much prep work to do pre-recession
There is too much to be done to prep for a recession, and there might not be enough time to do it if you wait for some sort of warning sign to begin. These things may include the following:
The above items are essential if you want to both protect your financial and non-financial worlds during a recession. It's also important if you're going to thrive post-recession because of recessions, market corrections, and economic downturns bring asset prices down. The smartest investors are those who are eagerly awaiting a recession with a list of quality firms and other assets to buy up at low prices.
It's hard to find great firms at any time
Generally, quality firms are those who have healthy balance sheets, strong and growing earnings, proper management, and are engaged in businesses that are not readily open to competitive entrants. This is an entire field of study, however, and there isn't enough room in a single article to even begin to delve into this topic.
From time to time and quite often, we find ourselves in need of extra money. Maybe we're paying down some credit card debt or maybe we need a few extra grand in order for us to take that vacation or maybe we need $10,000 more to be able to afford the down payment on the house we want.
Whatever it is that we need, we are lucky enough that living in a capitalist society allows for ample opportunities to earn side money. This isn't easy to do and your success will depend on many factors, including your skills, your grit level, your energy level, and the amount of time you have to devote your side hustle. But, if you're lucky enough to be able to take advantage of some opportunities that currently exist to earn side money, you could very quickly change your and your family's financial picture in as little as six months.
1. Drive for Uber/Lyft or another good ride-sharing service: Not a great job -- more of a gig in today's parlance -- but an excellent way to make extra cash for a short time if you've got the energy and the drive for it. You could put in a ton of hours and, over the course of six months, take major leaps forward in terms of your financial life. You'll need to have a reasonably new car and be able to pass a background/driving record check.
2. Charge scooters: Mobile electrics scooters like Bird, Jump, and Lime are taking over city centers and downtowns all over the US and the world. These scooters need to be charged and most companies have set up Uber-like/gig-like approaches where people can charge them overnight for a fee. The pay is not going to be great here - you'll earn a bit of money on each scooter. You'll also need cheap transportation, the ability to stay up for hours at night, and cheap electricity to make this worthwhile. But, if you fit the mold for this, you can earn some extra side cash. This is not a sustainable long-term solution to your money problems - the pay is too little, it requires a lot of energy, and the price of electricity makes it prohibitive for some people.
3. Start a blog, and do it well: You could always start a blog or a website on some niche topic, write amazing SEO-optimized content, and make money from ads. This is incredibly popular, especially in the US. There are a ton of resources available all over the internet on how to do this. This is a path that will take a while and where your patience will be tested - you'll be spending a lot of time, energy, and some money upfront to build out a good online presence. The key is not to get your hopes up too high about what's achievable.
4. Participate in focus groups or other research groups: A great way to make extra money is by participating in focus groups, research groups, or other such types of surveys. The best of these are in-person. You can search online to find some consumer research-type firms in your area and sign-up - most usually have an easy way to sign-up to receive updates. You'll periodically get updates with requirements (eg. age, type of car you drive, gender, preferences, consumer choices, etc.) and you can sign-up for them. The pay can be pretty solid - you can make a few hundred USD in just a couple of hours (sometimes more and sometimes less).
5. Tutor: If you're intelligent and have some solid knowledge about a particularly challenging topic (eg. organic chemistry, introductory Calculus, or Russian), you can tutor people and possibly build a sustainable side business that has the potential to generate extra money for you and your family. This is something that will take time to build and develop - starting a tutoring business is, in fact, starting a business, but it's not a business that requires much upfront cost. There are tons of websites online that facilitate student-tutor matching, but you can go the old fashioned route and post fliers up at local colleges, community colleges, high schools, churches, your local library, and other community centers
The above aren't the only ways to make extra money with a side gig. There are plenty of opportunities available to earn extra cash on the side for people who are smart, hard-working, and willing to put themselves out there a bit. Of course, the more skills and education you possess, the easier things will be (eg. charging scooters vs. tutoring differential Calculus), but there's no stopping you from taking a few steps forward in your financial life if you're gritty and willing to put in the work.
Too many people read lists like the one above, but never take a single step - a lot of us seem to just feel good enough searching on Google and reading the list; we too often get complacent and self-satisfied too quickly and don't actually pursue any of the above money-making opportunities. Others are eager to make extra money and change their financial picture, but are too timid to pursue anything out of their comfort zone. Avoid these pitfalls and mental traps - keep moving forward, both financially and non-financially, one step at a time.
1. Wealth allows you to obtain more comfort: Wealth and money allow you to have more things, better things, and get them faster. We all know that money doesn't buy happiness, but money can definitely buy you a lot of physical comfort(s).
2. Wealth allows you to make those you love comfortable: More important than making yourself comfortable, wealth allows you to improve the physical circumstances of those you love, whether that means helping your kids with a down payment, providing a good home for your family, taking care of your ailing parents, or giving a much-needed gift to a friend. Making the lives of those you love better is one of life's greatest joys.
3. Wealth allows you to affect the world: You can affect the world without having much wealth – some of the most influential people throughout history didn't have much in the way of resources, wealth, income, or power. But, having wealth does help make an impact on the world. If you've got a ton of money, you can help strangers by leaving large tips, or you can help college students by funding scholarships. With wealth, the options are almost endless.
4. Wealth allows you to demonstrate your value-creating abilities: If you're able to create value for other people, businesses, or organizations, you'll end up having money come your way most of the time. If you don't have any money, it's hard to argue that you've created a lot of value (of course, you could be a big spender). Real wealth, obtained in morally correct ways, is a big sign that you've done some things right.
5. Wealth opens up more opportunities for you: You surely don't need wealth to succeed, but having it helps a ton. If you have the money, a lot of doors open for you - they might be professional doors, they might be social doors, or they might be health-related doors. Wealthy people are able to utilize far more of this world's resources in getting the thigns they want:
At the beginning of your wealth-building lifetime, it's your rate of saving and investing that matters more than your rate of return
People in the investing and financial world fetishize rates of return. Often cited and mentioned in financial articles is financial/investing genius Warren Buffet. Since 1965, Buffet has generated (thru 2017) approximately 21% annually. This is astonishing and deserves both praise and diligent study, but for most people who are in the early stages of their investing lifespan, it isn't relevant or useful.
The reason it's not relevant or useful for most people who are in the earlier stages of their investing timeline is that a focus on investing rates of return is useless and distracting. It's not the rate of return that matters most for a twenty-something or thirty-something investor. Instead, it's their rate of saving and investing that matters far more.
Barring ridiculously large and deeply improbably investing returns, getting more return won't be as beneficial as saving more. Imagine you have $1000 today, you can get an astonishingly high 50% return, or you can save another $1000 and get a100% gain effectively. If you've got $10,000, this becomes harder to do unless your income is very high. At $100,000, it's very hard to save an additional $100,000 - you'd likely want to start giving proper focus to investing returns. At $1 million, you'd likely begin to see more gains from investing than from saving. Obviously, these numbers need to be adjusted depending on income, but the core principle remains the same - if you don't have a lot of capital to work with, stashing away more capital is going to be better for you than trying to finesse something with the small amount of capital you do have.
You can't save your way to riches if you don't have a big enough income to save just like you can't dig a big hole if your shovel is tiny. Too many people, too many financial websites, too many financial advisors, too many financial shows have for too long advocated saving with a deep lack of attention to the more important sid of the equation: INCOME.
Of course, even if you have an enormous income but still manage to spend it all, you won't build wealth. But that is not at all relevant to what we're discussing here. What we're saying is that there are simple mathematical and physical principles govern the world we live in and based on these principles there's something we know that's true:
the maximum amount you can save is your full income - this would be not possible in most cases it would require not spending anything
So, if you're earning $30,000 a year but are the most magnificent saver in the world, the most you can possibly save is $30,000 but realistically you'll be considered an ultra-saver if you manage to save $20,000 a year.
Contrast that $30,000 per year example with someone who earns $300,000 a year - clearly that individual has a much bigger shovel and has a lot more room to take advantage of saving. In effect, this person who makes $300,000 can benefit more from saving because the more he/she saves the more they can put away for building wealth up to their income. In effect, if they can spend $10,000 a year like the person in the $30,000 example, they can save a huge pile of money every year and build a lot of wealth.
People should be focused on saving, but they should equally (if not more intensely) be focused on generating more income for themselves os that they can put more money aside. This is easier said than done and that's the reason most financial resources tend to focus on saving rather than increasing income - everyone simply wants to pick the low-hanging fruit.
If you’ve had a financial emergency that forced you to dip into your emergency fund, rebuilding it quickly is crucial to your financial success even though it might seem like a difficult and unpleasant task. Read the article below to get motivated and to find out how you’ll be able to rebuild your emergency fund very quickly.
If you have weathered a financial emergency by tapping into your emergency fund, I want to take a moment to congratulate you. I know things might seem difficult now and even if the financial emergency is gone, it never feels good to have to tap into your emergency fund. However, I congratulate you anyway because the fact that you even had a rainy day fund in place puts you above so many others who must weather financial emergencies with no rainy day fund - they must either resort to going into debt to pay for the financial emergency or they must liquidate some of their investments. You, however, planned ahead and had a rainy day fund in place to guard you and your household against life’s financial storms - instead of hoping that those storms wouldn’t come, you knew they would one day arrive and you set out to put an emergency fund in place between you and the harsh realities of the world.
Now, however, it is time to once again buckle down and quickly rebuild your emergency fund. You can’t waste time by slowly rebuilding your emergency fund. At Pennies and Pounds we recommend building up your emergency fund very quickly and, in the same light, we recommend rebuilding your emergency fund very quickly after a financial emergency.
First, You Need to Get Motivated. Don't have the energy to build an emergency fund again? Too bad - you've got to do it and it's not as hard as it might seem.
I know how hard it is to weather a financial emergency and to see the emergency fund you built with your sweat, your toil, and your sacrifices be depleted to take care of something that shouldn’t have even happened in the first place. You might not feel that you have the internal energy to build up your emergency fund quickly again - you might feel like you’re not up for it. This is an understandable feeling, but you cannot let it prevent you from putting in the necessary effort into rebuilding your rainy day fund quickly, an integral part of your financial success and well-being.
The truth is that even if you feel like it’s too much trouble to rebuild your emergency fund, you’re probably wrong. It’s not as hard as you likely think it is. You built up your rainy day fund once and you can do it again. In fact, it will be easier to do it again because you’ve already done it once before - you have proven yourself capable of achieving the important task of putting a proper emergency fund in place.
Building up your emergency fund won’t take much time, but it will take some concentrated effort. The good news is that the effort you will have to exert isn’t particularly difficult as you will see below - it might be slightly physically taxing, but it won’t likely be overly mentally or emotionally taxing. You’ll need to buckle down for a bit, but it won’t be long or particularly arduous.
Use the Following Strategies to Quickly Rebuild Your Emergency Fund After a Financial Emergency
1. Get a Temporary Second Job: Get a second job doing something on the side. Dave Ramsey's pizza delivery job has been the classic recommendation, but today many more options are available. You can drive for Uber or Lyft if your car meets the requirements. You can tutor if you have skills that are in demand. If you have the skills, it might be possible to do some freelance consulting. Even a weekend job as a cashier is a decent short-term gig if it helps you supercharge your emergency fund savings.
2. Sell Stuff: Selling stuff is a tried and true way of getting your hands on some cash quickly. Some people have more to sell than others, but if you have things that you aren't using anymore, try to put them on eBay or Craigslist.
3. Cut Down Big Time: Most households have some fluff-room (that's not a technical term). What I mean is that most households aren't just buying the basic necessities, but are instead buying extra luxuries. It might be possible to buckle down and cut out a lot of unnecessary (although pleasant) expenses for a short while. It obviously won't feel great while you're doing it, but it's not for long and once you have your emergency fund in place you can go back to a normal lifestyle secure in the knowledge that you have a cushion of cash in place against all of life's crazy unpredictabilities.
Using the above strategies, you can quickly rebuild your emergency fund after a financial emergency. We highly recommend you rebuild your rainy day fund as quickly as possible so you can sleep easier and so you can return to focusing on your other long-term financial goals such as investing for the future and building wealth.
1Even though it might be hard to rebuild your emergency fund after a financial emergency, it is a necessary action and you must do it in order maintain your financial house - in order to keep a buffer between your household and the financial storms that might come your way again.
Now that you’ve already had a rainy day fund and weathered a financial storm, it will be easier to rebuild it than you think - you’ve just got to start and you’ll see how quickly you can rebuild your emergency fund using the tried and true tactics above.
Income vs. Monthly Expenses: Use your required monthly expenses to properly size your emergency fund, not your pre-tax or take-home income
Your monthly living expenses are a small portion of your monthly income and will most likely be less than your current monthly expenses due to your ability to cut down on extras and luxuries. In many cases, you can use your required monthly expenses, instead of your income, to size your emergency fund appropriately and avoid keeping excess cash in non-earning/growth parts of your financial portfolio
The common financial rule of thumb says that you should have 3 to 6 months of living expenses in your emergency fund. But what does "living expenses" actually mean? To calculate your monthly living expenses, you need to combine the amount needed to maintain your household's physical and mental-well being along with your other monthly required payments. Surprisingly, it is possible for your monthly living expenses to be quite a bit less than your normal monthly spending. Read the full article below to find out your monthly living expenses and be surprised at how reasonable they can be relative to your income.
What can be considered living expenses for the purposes of emergency fund sizing?
The typical rule of thumb is to have 3 to 6 months of living expenses stored. Although this might not be right for everyone, it is generally a good rule of thumb because it balances the costs of having a significant portion of your wealth in cash (and possibly earning so little that inflation is eating away at it) with the benefits of having a cushion of liquid funds available should a financial storm strike. Inquisitive minds will follow with the following question: What do you mean by "living expenses?" This is an excellent question because the rule of thumb states that we need to look at living expenses as opposed to income.
Living Expenses vs. Income
Living expenses are not income, but instead mean the total amount of money needed to provide for the needs (as opposed to wants) of you and your household, maintain financial security, and keep you out of financial default. In a financially healthy situation, living expenses should be substantially less than your pre-tax income and less than your post-tax income by a significant amount.
Note: If you find yourself in the unsustainable situation where your monthly living expenses exceed your monthly income, you are headed for a financial catastrophe (unless you're expecting some sort of windfall) and you should immediately attempt to remedy the situation.
How to properly calculate your monthly living expenses so that your rainy day fund can be sized accurately - not too big, and not too small
To get at your monthly living expenses number, we will first focus on the expenses required to maintain immediate life, health, physical, and mental well-being of your household:
But living expenses aren't enough - you've got to think about required monthly payments (eg. student loans, credit cards, etc.) when determining the appropriate size for your emergency fund
After we have taken care of the basic necessities, we will need to tabulate your required monthly payments in order to properly calculate your monthly living expenses. You want to stay out of financial default and maintain any sort of insurance you have in place even in a financial emergency, so it is important to account for the following:
Remember that this is a very general guide meant to be used by a variety of people. Your situation is unique and it is possible that your monthly expenses may be different by a little or a lot from what we discuss here. Things such as the number of dependents, unique family situations, unique jobs and businesses, unique medical or mental health needs, or unique lifestyles might cause your situation to be different from the typical scenarios discussed here.
If you've been using monthly income to determine the size of your emergency fund, it might be a bit too big
If you're a true financial nerd you can put numbers to each of the above items and calculate the current projected monthly living expenses for your household (it's only going to be a projection because things are random in this world and things can change at any moment). If you're not yet a hardcore financial nerd, it might be enough to just glance over the items and roughly estimate the amount needed in your mind (provided you understand that this will be a less accurate estimation of your monthly living expenses). Either way, you will likely come to the conclusion that your true monthly living expenses as needed to calculate the size of your emergency fund are less than what you currently spend on a monthly basis. This is generally true fro the following two reasons:
Although your monthly living expenses don't have to be the size of your actual monthly expenses, it is wise to remember that a conservative approach will lead to a more robust emergency fund and a more resilient financial situation for you. Err on the side of caution and don't be overly aggressive in estimating how much you can cut down during a financial emergency.
I know it's not fun reading the above - no one wants to cut out their premium bottled waters, their dinners out, movies, app and music purchases, premiums soaps and shampoos, or anything else they enjoy doing. If you're in a financial emergency, however, it is wise to buckle down for a bit until you get back on your feet. Discipline and short-term self-denial can be excellent tools for quickly recovering form a financial emergency minimally scathed. The knowledge that you can buckle down and survive with a diminished lifestyle for a short period of time is useful in figuring out how much money you'll need in your emergency fund.
In conclusion, you don't need to use your monthly income when calculating your emergency fund - your monthly living expenses are likely to be significantly less than your income. Additionally, you can cut out extras and luxurious and only focus on the necessities described above when calculating your monthly living expenses. This will allow you to get a better and more accurate picture of how much you need have in your emergency fund and you'll see that you can fill up your emergency fund much more quickly because of this. However, remember to not be overly optimistic about how much you can really live on - be realistic with a conservative outlook and you should be fine.
And now, given the rise of cyrptocurrencies and crypto assets to quasi-mainstream financial assets, we're dedicated to providing quality, relevant, and interesting material on cryptocurrencies and cryptoassets. Articles on Bitcoin, Ethereum, Ripple, Cardano, and many more cryptocurrencies and cryptoassets can be found on Pennies and Pounds - all that in addition to a plethora of information on what cryptoassets are, how the entire crypto industry came to be, blockchain/immutable ledger technology, mining, proof of work, proof of stake, and how to prudently invest in crypto if you are so inclined (based on your risk tolerance and ability to withstand the volatility that will come with a crypto portfolio).