It’s well-known that homeowners tend to have a higher net worth compared to renters. However, while renters face unique financial hurdles, there are actionable steps they can take to improve their financial standing and build wealth over time.
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A Snapshot of Renters’ Financial Challenges
A recent report from the Aspen Institute revealed that the median net worth of renters in the U.S. reached $10,400 in 2022—a record high. Despite this milestone, it represents less than 3% of the nearly $400,000 median net worth of homeowners. Renters generally encounter obstacles such as lower income, higher debt, minimal savings, and lower rates of asset ownership.
The disparity between renters and homeowners is not solely due to home equity. The report highlighted that median home equity, valued at $200,000, accounts for just over half of the median net worth of homeowners. This indicates that a significant portion of homeowners' wealth comes from other assets.
Renters are less likely to own valuable assets such as cars, retirement accounts, and securities. Even when renters do hold these assets, their median values are typically lower than those held by homeowners.
Steps Renters Can Take to Build Wealth
Experts suggest that renters can begin building wealth by addressing key financial areas. These include reducing outstanding debt, increasing income and savings, and carefully evaluating when purchasing a home might be a sound decision.
Below is a breakdown of financial challenges faced by renters in three income brackets, along with strategies they can adopt to improve their financial situation.
Renters Earning Less Than $25,000 Annually
More than one-quarter of all renter households in 2022 earned less than $25,000, according to the Aspen Institute. This group is more likely to be “cost burdened,” meaning they spend a significant portion of their income on housing and utilities, leaving little room to cover other essentials or save for the future.
Janneke Ratcliffe, vice president of housing finance policy at the Urban Institute, explained that these households often struggle to achieve financial stability, especially when benefits tied to income levels are reduced or lost as earnings increase.
The Aspen report emphasized that financial stability is a critical foundation for wealth-building. Households in this category need consistent positive cash flow through higher income, reduced expenses, or both. They also need to build savings, access personal resources, and benefit from programs that enhance financial security.
Experts recommend addressing high-interest debt as a priority. Clifford Cornell, a certified financial planner, highlighted the destructive impact of credit card debt, which can significantly hinder savings progress.
“It’s one of the most toxic financial burdens and can derail someone’s financial stability,” said Cornell.
Shaun Williams, a private wealth advisor at Paragon Capital Management, also stressed the importance of thoughtful housing decisions. Moving to areas with better job opportunities and lower living costs could improve income prospects while reducing expenses.
Renters Earning $50,000 to $75,000 Annually
Approximately 18% of renter households earned between $50,000 and $75,000 in 2022. These households generally experience baseline financial security but could benefit from increased cash flow through higher earnings or reduced debt.
Cornell advises renters in this income bracket to closely monitor their cash flow. Identifying opportunities to save 5% to 10% of income each month can make a significant difference.
“This is the stage where you can start building momentum,” said Williams. He added that renters in this bracket should also explore ways to increase their income, whether through additional skills, career advancement, or side hustles.
Renters Earning $100,000 or More Annually
Around 20% of renters in 2022 had annual incomes exceeding $100,000. These individuals often rent by choice rather than necessity. In some regions, renting remains more cost-effective than owning due to high property taxes, maintenance costs, and other expenses associated with homeownership.
Even though these renters don’t benefit from building home equity, they can prioritize growing their investments and savings. For instance, if a renter’s monthly payment is $500 less than a comparable mortgage, they could invest that difference in a retirement account or other financial vehicles.
“Renting can be a strategic choice, allowing you to save and grow your wealth faster than real estate appreciation,” Williams explained.
Conclusion
While renters face distinct challenges, adopting smart financial strategies can help them overcome these hurdles and build wealth over time.
Whether it’s reducing debt, improving cash flow, or making thoughtful housing decisions, renters at every income level have pathways to strengthen their financial futures.
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