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In time we will always (or have already) move from parents home, to our new place. It could be a house, an apartment, a room in apartment, whatever, but this is our new home, our own territory.

So in this situation, quite often interesting question arises, whether to rent the apartment, or to buy one?

I will overview this situation from the bank loan view for the apartment buying, that would be much interesting, and i think, more close to reality.

Prices

I live in Estonia. All operations will be in US dollars, but converted from prices in Estonia.
$1 ~ 10 EEK

The average 2- 3 room apartment (50 -70 square meters) costs now around or $100 000.

The average rent for the same flat is around $400 in a month.

Bank Loan

Loan interest= 5%

The interest is dynamically calculated, depending on economics and the sum you still need to pay back. The longer the period- the bigger the sum will be, that you pay back.

For example:

If you take a loan where interest is 5%. And we need $100 000.

It is easily to notice, how much the interest is getting bigger, depending on for how long you have taken the loan.

Bank loan VS rent

So, the interesting part. I will assume the bank loan will be taken for 20 years. I must explain. In Estonia an average salary per person was around $1200 in a month. Now it is much smaller, because of the world financial crisis. If family has 2 adults, so they can manage to live nicely, paying the loan.

Conclusion

My personal opinion is. Buy a flat.

If you are not planing to go back to you parents home and have enough money, or wherever, but the apartment, or house. If you look at those tables, you can see how much money you will simply give away to somebody. It is like buying air balloons- they are nice, but useless.

The rented apartment does not belong to you, the owner can decide to throw you out (yes, and sometimes they give few days only to pack your stuff). You can not do anything inside (for example drilling a hole in a wall to hang a picture), and so on…

But when having a loan, you are the owner! You can do anything to you place, and this will be something like investing (7 years ago it was called an investment- to buy a flat).

And look around, the world financial crisis has dropped the prices way down!

What do you think?

5 topics to make it clear

It is recommended not to use emotions at all, when dealing with money. Clear mind should be used. Unfortunately, quite high percent of investors and traders are still losing money. They invest more and more money, when the shares are growing and selling when shares are falling. This strategy is not quite correct.
I will try to explain some topics in how to invest a little bit more effectively and in bad times keep as much money ‘alive’.

1. Do not react on everyday news.

   It is useless to react on everyday news. There is not a better possibility just not to touch invested money into good company, and wait to see the it growing.

2. Do not ignore your investment strategy.

   Make a plan, and follow it. This fill definitely maximize your income and minimize loss. This is quite difficult, because of the simple human nature- fear, that you will loose everything. Emotions will make all your great plan for buying a yacht disappear at once. Take it easy.

3. Panic because of the stock market fluctuations.

   Use this possibility instead of being part of it. The price goes down- buy good companies shares for low price! Remember, when everybody is selling – buy, and sell when everybody is buying ( the selling is mainly for traders, investors could use the cheap price to enter the market).

4. Refusing to invest into shares when market is down.

   The most successful investors were buying shares when everybody else were selling them. This is not easy at all. But isn`t it crystal clear- you are buying shares for low price, meaning they will give you back later much more. Of course, only good companies do…

5. Keep adequate resource distribution.

   You should regularly check your resource distribution. Meaning all your money is correctly disturbed, depending on your strategy, whether in shares, cash or funds. When shares price is falling, for example, you could decrease shares percentage in you capital.

Desire to keep your expenses low, very often will not make you ‘own’ more money.

One of the biggest delusion when reorganizing financial life is thinking about ’spending less money’. Of course, all unnecessary purchasing should be canceled, but not important ones. Spending money on necessary, or what will definitely pay for itself is ‘life important’. For example you wanted to save some money- you did not go to service when strange noise started to come under the hood of your car. Few weeks or even days later it can become so awful, that the whole engine should be repaired and that will be expensive.

Here are 5 advices to keep your money up and running:

1. Do not buy anything on sales.
   Cheap stuff rarely offers good quality. On the sales often you do not think about so simple things, like ‘do I really need that stuff?’. If you have really found something you think is very needed, do not buy it, until you have checked all other possibilities (perhaps the same price but higher quality?). Buy only when there is really no other possibility.
2. Do not buy cheap things.
   ‘Cheap’ does not mean ‘good’. To receive in full, think not about the price, but about the value. Cheap car will be more expensive in running or service. This type of car has lover value than more expensive car, which running costs are lower. This type of ‘used to’ can be used anywhere, what means – you are buying things that are a little bit expensive, but will fully pay for itself.
3. Do not loose your time.
   Sitting at home in front of the TV. Of course, it is much ‘cheaper’ to sit at home than going out, for example, to pub. Instead of being home and complaining that you can not afford yourself some entertainment, you could attend professional developing courses. So you could find better job or improve personal financial skills. The next year you wont complain anymore.
4. Do not spend to much time on analyzing the stock.
   In the beginning, it would be better to put your capital into fund. You would not worry so much about the money, and it will be growing (should be at least). With this you have the ‘money – making – more – money’ stuff and do not need to spend time on analyzes (you should be working that time). In time, when you are more financially independent and with a little more resources on bank account- go on, enter the big world of investment!
5. Do not trust all investments to experts.
   ‘Never have all the eggs in one basket’- this is the best description. You have your own head on the shoulders, and it should be thinking. You should use experts skills and knowledge, but the last decision is your one. The job salary can not be the main motivation in job seeking. The biggest mistake to choose a job what pays good, but you do not like it (I think even hate sometimes). In long- term investment you should be doing the thing you like. Even if it is not paying back at first, it will definitely later do. Man gives much more of himself for what he likes to do. Psychology.