One of the supposed core principles of personal finance is that you’re better off buying a home rather than renting one. The reasoning goes like this: When you buy a home, the money you pay toward owning it builds equity in the home itself. In contrast, the money you pay in rent is gone forever.
But while “throwing money away” on rent has become a cliché in the world of personal finance, entrepreneur and money author Ramit Sethi has a different view. In a recent newsletter, the author of “I Will Teach You to Be Rich” outlined a few reasons renting might be better than buying.
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“One of the best ways to live a Rich Life is to get clear on what matters most to you — and unapologetically prioritize those things,” Sethi wrote. “For me, that means renting instead of owning a home. It frees up money to spend on what’s truly important to me … A lot of you get pressure to buy a house from your parents, friends and other people who don’t know what they’re talking about.”
Here are three signs you’re not throwing money away on rent, according to Sethi.
Also see the top five factors renters look for in a place to live and why it’s important to your wallet.
More of Your Paycheck Stays With You
One reason renting might be better than buying has to do with skyrocketing home prices. Homes have gotten so expensive that their costs suck up a much bigger percentage of your annual income than they used to. This is less of a problem with renting because there are fewer costs involving taxes, fees, maintenance and interest.
In his newsletter, Sethi noted that a few decades ago, the typical home cost about 2 1/2 times your annual income. If those rules still applied today and you earned a gross yearly income of $50,000, then you would look to buy a $125,000 house.
“Do you know of any house you’d want to live in today that costs THAT little?” Sethi wrote.
As it stands, the median sales price of homes in the U.S. was $359,099 as of October 2024, according to Zillow. Meanwhile, the latest U.S. Bureau of Labor Statistics data shows that median earnings are $1,165 a week, or $60,580 a year. Based on those numbers, the typical home would cost about 5.9 times the typical yearly income — more than twice as much as in the old days.
Check Out: 10 States Offering the Most (and Least) Space for Your Rent Money
You Live in an Expensive Housing Market
In some markets, home prices aren’t only expensive — they’re totally out of reach for the vast majority of Americans. According to a recent Fast Company analysis of Zillow data, there are 18 U.S. counties where the typical home costs more than $1 million. These range from an average of $1.01 million in Monroe County, Florida, to an average of $2.73 million in Nantucket County, Massachusetts.
If you live in an expensive area (and you’re not wealthy), then you’re almost always better off renting, according to Sethi. He explained that if you live in cities with high costs of living, like New York or San Francisco, “buying might not make any sense whatsoever.”
You Have More Money To Invest
Sethi admitted liking the convenience of renting. He also likes the fact that the money he saves on repair and maintenance costs can go toward helping him build wealth in other areas.
“If there’s a problem, I don’t need to panic and run to Home Depot,” he wrote. “I can just text my landlord for help. But there’s an even larger benefit: I can take all that money I saved from renting, not buying the unit … and invest it.”
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This article originally appeared on GOBankingRates.com: 3 Signs You’re Not Throwing Your Money Away on Rent, According to Ramit Sethi
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