Dreams cost more than you think.
Traditionally, the American Dream has included home ownership, an occupied two-car garage, and 2.5 children who reach adulthood via leafy college campus. Home ownership and the American Dream have been linked since 1934, when President Franklin Roosevelt created the Federal Housing Administration (FHA) to help more people qualify for mortgages. Over the ensuing decades, presidential administrations have promoted home ownership as the path to financial stability, a responsible aspiration as sensible as eating one's vegetables and flossing daily.
But then the Great Recession hit in 2007, and everything changed. Home owners with exotic loans reset at higher interest rates just as their property values nosedived. Including a mortgage payment in a monthly budget became a pipe dream for many. Foreclosures mushroomed, new housing developments were abandoned, and today you can buy the distressed childhood home of rapper Eminem for the housing market equivalent of pocket change.
Today the economy is healing, and the foreclosure pipeline shows signs it will mostly empty out in the next year or two. Affordability is still relatively high, but the lowest cost listings have been mostly drained from the market since being bought by private firms interested in single family rental properties. Some first-time buyers and buyers with sketchy credit want to buy property, but the American Dream has changed. Today's monthly budget may or may not include the cost of home ownership.
The Recent Credit.com Poll
GFK Custom Research recently conducted a survey of approximately 1,000 people age 18 and older for Credit.com, and the results indicate that getting out of debt is the new American Dream. Around one-quarter of those between ages 18 and 24 consider becoming debt-free as their American Dream, and that's a larger proportion than those who dream of buying a home. To many young people today, getting out of debt is the key to their having a stake in society, unlike earlier generations who held home ownership as the ultimate financial accomplishment. Specifically, poll results indicated that the most important financial goals of respondents were:
•Being debt-free (33.4%)
•Retiring at age 65 (11.6%)
•Paying off a car loan (11.3%)
•Sending children to college (8.1%)
•Buying a home (6.8%)
•Paying off student loans (6.2%)
•Paying off a mortgage (5.6%)
•Buying a vacation home (3.2%)
Two Interesting Age Gaps
The youngest poll respondents (ages 18 to 24) were most likely to define being debt-free as the American Dream, while those age 65 and older were most likely to describe it as being able to retire. At the same time, older respondents were less optimistic about becoming debt-free. When asked about the possibility of being free of debt, 18 to 24 year olds were most optimistic about achieving that goal, whereas those in the 50 to 64 age group were much less likely to believe they would ever be free of debt.
Using a Monthly Budget to Get Out of Debt
Plenty of people dream of a financial windfall they can use for getting out of debt, but realistically the humble monthly budget is the tool that actually accomplishes this goal. The three main principles of creating a monthly budget are understanding what you're spending, what you earn, and estimating monthly expenditures. Mint.com offers free online tools to help people track spending and create a monthly budget, whether it includes a mortgage payment or not.
If your monthly budget comes up short, remember that the most important bills are those that have the steepest consequences if unpaid: Rent or mortgage, utilities, and food. If you're paying off credit card debt, set a goal of paying the minimum plus a certain amount each month. Even if you only put $10 per month over the minimum toward credit card debts, you'll pay them off sooner and save significant amounts of interest.
Don't include "found money" in your monthly budget. This isn't money that can be counted on, like birthday gifts and bonuses. Use found money to lower your debt, and you buy something more satisfying than a new cappuccino maker. You buy yourself increased financial freedom.
The American population is changing, and American dreams are changing, too. Young people today dream of being debt-free and may or may not dream of owning a home. Whatever your American Dream is, your monthly budget is the foundation upon which it will be built.
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