Components of a Financial Plan
February 12, 2025
In the previous article, we have established the fact that convertible debt is advantageous to some types of companies. We also know that this financial instrument can be quite complex. It is a known fact that investors who are not well versed in investing in bonds have a hard time understanding the functioning of convertible […]
We all know about initial public offerings. These events are held to issue new stock and sell them to the general population. The stock has value because it is a claim on the underlying assets of the company. However, very few of us are aware of the term initial coin offerings. These events are also […]
Credit cards have become an increasingly important part of every consumer’s finances. Banks now have more credit card customers than they have savings bank accounts. However, the product is relatively new. As a result, banks may not have anticipated the scale to which this business would grow. They are therefore working on with a rudimentary […]
What is a Security ? Assets with some financial value are called securities. Characteristics of Securities Securities are tradable and represent a financial value. Securities are fungible. Classification of Securities Debt Securities: Tradable assets which have clearly defined terms and conditions are called debt securities. Financial instruments sold and purchased between parties with clearly mentioned […]
In the previous few articles, we have already studied the concept of automation as it related to retail warehouses. However, it is important to realize that warehouses are not the only place in the retail sector where automation is possible. Over the past few years, the usage of technology in the retail space has rapidly […]
The rent vs. buy decision is as old as the concept of financial planning itself. There are people who have very strong views on both sides of the spectrum. There are some people who believe that owning a home is always better and that renting a house is like throwing money away. At the same time, there are others that believe that renting is the way to go because of the less commitment and mobility that it provides.
Needless to say that this decision has a huge impact on the financial future of any individual. Firstly, housing expense is the single largest expense that any individual has. Even by the most conservative estimates, people spend around 25% to 33% of their income on their housing decision. Hence, it is important to be frugal about this decision as it sets the tone for the entire budget.
In this article, we will have a closer look at some of the financial and non-financial arguments which are made in the rent vs. buy debate.
Renting and buying are both different ways to stay in possession of a home. However, the expenses and benefits that arise from these different structures are quite different from one another.
Let’s take a look at the true cost of renting and buying.
When a person rents a house, they only have to make a couple of small financial payments.
It is important for a person to consider all the costs and come up with a consolidated total cost of renting. Comparing only the rental cost with the ownership cost is incorrect. This number is expressed in relation to the value of the house in the form of a rental yield. This helps compare the rental costs amongst different properties and also to compare it to different investment options.
When it comes to owning a home, there are more payments that need to be made.
All this should be added up to reach at the total cost of ownership. In most parts of the world, ownership will be at a premium. However, the amounts need to be compared. For instance, if the cost of renting a property is about half of what it costs to own the property, one might be better off renting the property. On the other hand, if the property prices are appreciating rapidly in the vicinity, then buying may be a better option.
The bottom line is that there is no single answer to the rent vs. buy question. Hence, the method to make a comparison between the two options has been explained above. The decision can be made by the individual based on the outcome of their analysis.
Your email address will not be published. Required fields are marked *