Think you’re well-informed about finances? Put your fiscal IQ to the test with a few of these fact or fiction questions:
FACT OR FICTION? It is cheaper to buy a home than it is to rent a home.
Yes, it’s true. In most major markets, it is still cheaper to buy a home than it is to rent a home. However, this year, mortgage rates are expected to rise (up to 5 percent, according to Zillow’s predictions), and homes are expected to become less affordable than they were last year. As for rents: supply is tight, and demand is high. That’s a combination that leads to higher prices. The most effective way to cut costs is to negotiate with your landlord, emphasizing your good credit, steady job, payment history and solid references. But before you do, research prices by using tools like Zillow’s Rent Index so you’ll know how much wiggle room you actually have. Did you know that two-thirds of renters skip this step altogether and simply sign the rental contract, no questions asked? As a result, they often end up overpaying.
FACT OR FICTION? Most Americans have a rainy day fund established.
Sadly, more than half of Americans do not have an emergency fund set up. This year, make it a priority to build up three to six months of living expenses. For a typical single person, that’s normally around $10,000 to $15,000; for those with a family and a mortgage, think more along the lines of $30,000.
FACT OR FICTION? You should have more than one credit card.
While there’s no “right” number of credit cards you should have (it all depends how you use and manage your accounts), I like the idea of having at least two. Your “main” card should be a no-fee rewards card, where you’re getting cash back for your everyday purchases, from gas to groceries. Your second card — a low-interest, high credit-limit card — should be used as an emergency backup card, although you should keep it active by taking it out to dinner every now and then.
FACT OR FICTION? Prices on consumer goods are down.
Prices are actually higher on any number of things, from food (prices are expected to be up by about 3 percent this year, and even more than that for things like chocolate, beef, bread and cereal), clothing (cotton-based products are expected to cost 5 percent to 8 percent more this year), homes (Zillow expects prices to rise 3 percent nationally), cars and more. What will be less expensive in 2014? Expect lower price tags on items including television sets, printers, tablets, smartphones and gas.
FACT OR FICTION? As a nation, we are financially literate.
Reports show that many Americans are still struggling to make ends meet, plan ahead and make sound financial decisions. In fact, 19 percent of us are spending more money than we make; 34 percent pay only the minimum amount due on credit cards; 16 percent have been charged a late fee; and 11 percent have used their credit cards for a cash advance. There are consequences for this behavior. What’s the first step toward improving your situation? Becoming more financially astute. Consider going to a site like LearnVest, where you can speak with a financial expert for free. After the initial consultation, you can decide whether or not you’d like their assistance in helping you design a customized plan that best suits your financial situation and objectives.
Vera Gibbons is a financial journalist based in New York City and is a contributor to Zillow Blog. Connect with her at Veragibbons.com.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.