The traditional approach to sound ﬁnancial planning is to buy a property as soon as you can instead of renting. The rationale is that you will be better off paying for your property as soon as you can with the rent you are paying to your landlord.
Listen to Paul chatting to Sam on Weekend Breakfast...
Paul's reasoning is as follows...
Cash fund first
If you are starting a new job, business, or if you are a contractor or freelancer you need to be conﬁdent that you can comfortably generate consistent income. Buying a property binds you to a long term ﬁnancial commitment which you will need to cover over the long term. You should aim to settle down ﬁrst and get a good ﬁx on your income over a period of time.
You need the peace of mind that you can cover your monthly expenses for at least 6 months. So step one in your planning is to save into a cash account until you can comfortably cover your living expenses for 6 months before even considering buying.
Property binds you
If you buy a property you immediately bind yourself to a location. If you ﬁnd a new contract on the other side of the city or country for that matter, you will then be burdened with the extra cost of commuting further or relocating, Renting will allow you to consider options of moving closer to where your work takes you.
Cash is king
Whilst you are a tenant the risk and costs associated with owning a property belong to the owner. Whilst renting you are freed up to save as much cash as possible for the eventuality of buying your own home one day when you are well settled in your career have saved a comfortable cash fund.
Currently the property market is pretty ﬂat and there is no compelling reason in the foreseeable future to rush in and buy. Mindful of the fact that interest rates are on the rise, the cost of borrowing will be that much more and your interest on your savings account will be that much better.
Read more from Paul Roelofse on www.investforlife.co.za
This article first appeared on 702 : 3 reasons to rent rather than buy a property