The Rising Cost of Rent

While waiting to save up for their first home, most young workers will have to rent housing as they leave school and begin their careers. In order for young people to save enough of their salary to eventually buy a home, it is important that renters not overpay for their housing. The standard rule is that renters should spend no more than 30 percent of their gross salary on rent. However, keeping to this standard is becoming increasingly difficult for the majority of American renters.

Economic changes have noticeably increased the cost of renting a home. Following the collapse of the housing market in 2008, many former homeowners were forced to become renters. Fewer new homes and apartment buildings are being built, and there are fewer spaces available for people to live. Thus, the past few years have seen an increase in the demand for rental properties. The rise in demand has increased the median cost of rent throughout the nation. Now half of renters spend over 30 percent of their gross salary on housing, and over a quarter of renters spend more than 50 percent of gross income on this expense. This can be a distressing problem for those who need every penny in order to save up for their future goals.

While there may be little that individuals can do to reduce the median rent in their area, renters can take steps to reduce the impact of high rent:

1)    Roommates – Sharing a rental property with someone who is trustworthy can lead to significant savings as expenses can be split. Before you rent with another person, try to find a roommate you already know and trust, agree upon how expenses will be shared, and investigate how a roommate will affect your lease agreement.

2)    Rent a smaller space – Rent often varies based on the property’s square footage. By renting an apartment that provides just enough space for your needs, you can spend less per month. Smaller apartments are also more energy efficient, so you spend less on heating and air conditioning.

3)    Rent in a money-saving location – If you must spend more on a place to live, try to find an apartment that offers many nearby resources. For example, an apartment near public transportation will save you the cost of always needing a car. Renting near a library provides convenient and free entertainment.

4)    Be a good tenant and negotiate rent increases – If you wish to avoid a rent increase or a move at the end of your lease, negotiate with your landlord for a price that is within your budget. This is easier to do if you are a good, quiet tenant. The landlord will avoid losing money while trying to find a new renter, and you get to avoid the cost of moving.

5)    Opt to live with relatives – Living with relatives can save you a lot of money, even if you still have to pay rent to the family member. Agree upon terms and expectations in advance so there are no unpleasant surprises.

READERS, what do you think?

Which of these recommendations is the most appealing?

What other spending sacrifices could you make in order to afford an apartment?

References:

Fottrell, Q. (2013, December 11). Why your rent is so damn high. Marketwatch, Wall Street Journal. Retrieved January 10, 2014, from http://www.marketwatch.com/story/more-americans-pay-50-of-their-income-in-rent-2013-12-10.

Aho, K. (n.d., 2011). July rental advice: As rents rise, what’s a renter to do? MSN Real Estate. Retrieved January 10, 2014, from http://realestate.msn.com/july-rental-advice-as-rents-rise-whats-a-renter-to-do.

Disposable Income vs. Discretionary Income

During the winter, many young adults get jobs to help fund their holiday shopping. Getting a part-time job can be a great, not only for buying gifts, but also for experiencing what it is like to earn a living. One of the first things people learn from their first jobs is that not all of their hourly wages finds its way into their paychecks. Paychecks are reduced by taxes and other required expenses, which are deducted before you ever get your pay. What is left over is known as disposable income. This is money that you are free to spend as needed for bills, paying off debts, or buying gifts. Young workers must anticipate that their disposable income will be significantly less than what they earn.

Disposable income: Disposable income is equal to your earned salary (or gross pay) minus federal and state taxes, Social Security withholdings, and Medicare withholdings. To find out what percentage of your gross pay you will predictably keep each pay period, look at your first paycheck. It will list all the standard withholdings that will occur. Follow this formula: Divide the sum of all the withholdings by your gross pay. Multiply the result by 100, subtract that result from 100.

100 – [(withholdings ÷ gross pay) x 100]

This is the percentage of your salary that you will receive as disposable income. By calculating this figure ahead of time, you will know how much income to expect each month.

Discretionary income: Discretionary income is what is left over from your disposable income after all your bills are paid. Since most bills such as car insurance premiums or rent tend to cost the same amount each month, you can calculate your expected discretionary income so you know what to expect. To calculate discretionary income, subtract all your regular monthly bills and expenses from your monthly disposable income.

Discretionary income = disposable income – monthly expenses

You should base your shopping budget on your discretionary income, not your disposable income. This way you can be aware of exactly how much money you have free and avoid overspending.

READERS, what do you think?

Did you know about all the tax withholdings from your paycheck? What do you think they go to pay?

Paying for College with KEES

Did you know that saving as little as $500 improves your chances of starting and completing a college degree? Even small amounts of money can make high education a lot more obtainable. Students in Kentucky have an extra advantage when saving for school. Any student attending (or recently graduated from) a participating Kentucky high school can earn scholarship funding through the Kentucky Educational Excellence Scholarship (KEES). As long as you meet the minimum requirements, the Kentucky Higher Education Assistance Authority (the organization that runs KEES) will contribute money to a KEES scholarship account on your behalf. You can even continue to earn more KEES money during your undergraduate years in college, as long as you meet the minimum GPA. 

Beginning your freshman year of high school, your yearly GPA is used to determine the amount of KEES money place into a scholarship account on your behalf. The minimum GPA is 2.5, and you earn more if your GPA is higher. So if in 9^th grade you have a 2.5 GPA, you will have $125 added to your KEES account. If in 10^th grade you have a 3.5, you will have $375 added to that first $125. You can continue to earn money in this fashion until you graduate. Whatever amount that is in your KEES account is now a scholarship award for EACH year of college. And don’t’ worry if your grades drop below the minimum one year, you can start earning KEES money again once you bring your GPA back up (This goes for college, too.). 

Students can also add to this scholarship through bonuses. To begin earning more scholarship funding, students can achieve at least a 1500 cumulative ACT score (or a 710 math/verbal SAT score). The higher the score, the more funding you receive. Free or reduce lunch students can even earn more scholarship money by taking AP or IB exams. A score of 3 on the AP exam will net another $200. So, if you have a 3.6 GPA for all four years of high school (+$1,600), a 21 ACT score (+$250), and an AP exam score of 3 (+$200), then you now have a yearly scholarship of $2050!

If college is not a part of your plan, you can still use your KEES money. KEES awards may be used to fund technical college education and even some vocational training.

To check your KEES account, go to https://www.kheaa.com/apps/registration/register-new. Register as a student and sign in. You may find that higher education is much closer than you think. 

References:

Kentucky Higher Education Assistance Authority. (2013). Kentucky Educational Excellence Scholarship (KEES). Retrieved from https://www.kheaa.com/website/kheaa/kees?main=1.

Patel, D. (2009). Education beyond high school is necessary: The role that parents, other adults, and friends play in young people’s education and training. HSFPP Update #224. Retrieved from http://www2.ca.uky.edu/hes/fcs/hsfp/updates/2009/update0224.htm.