How to build wealth when you don't own your home

Darla Kashian recalls closing on her first home, then getting laid off the next day.

She was working at a startup company as the dot-com crisis began. Panicked, she took the first job offer she got. Kashian, who is now an RBC Wealth Management advisor, looks back and thinks she shouldn't have used all of her savings toward a down payment.

"I think you're in a more powerful position when you have cash in the bank," said Kashian, who also recalled a $30,000 emergency repair immediately after another home purchase.

If you're in your 20s or 30s and frustrated at the recent home price boom and rising interest rates or aren't ready for raking leaves or shoveling snow, take heart. There are other paths to saving and investing toward financial stability and freedom.

To be sure, homeowners who borrow and stay in their houses for decades can build considerable equity in their homes. They have the forced savings account of a mortgage plus appreciation and prices have trended upward historically. A notable recent exception came in the years around the 2008 financial crisis.

Home ownership has been a substantial contributor of wealth for low-income households, since they hold the majority of their wealth in their homes, according to Habitat for Humanity.

But home ownership comes with opportunity costs, such as reduced flexibility to relocate for career opportunities. There's also the expenses, sometimes for sudden unexpected repairs.

We asked financial advisors for tips on how people in their 20s and 30s can build wealth as a renter. Here's a few steps to get started:

Live on less than you make

For younger people, the reality of paying bills, credit card debt, student loans and seeing rising rents can be overwhelming.

"The barrier for people who are in their 20s and their 30s right now is just the harsh reality of living paycheck to paycheck and struggling to make ends meet," Meyer said.

He and other advisors say this is the time to learn new skills at work or on the side to attain higher salaries as well as develop side hustles to generate more income.

"You lose thousands and thousands of dollars if you have never budgeted," said Andrew Clarke, Minneapolis-based founder of the financial empowerment website Expanding Wallet. "Credit is another thing people struggle with and lose thousands of dollars in interest and late fees. If you struggle managing debt, learn how to effectively pay down debt."

Stash away emergency savings.

If your car dies or you lose your job, having at least three to six months of living expenses accessible in a savings account can keep you from racking up credit card debt or borrowing from workplace retirement plans, which can be costly.

Other ideas to jumpstart savings: Put your tax refund in this account versus blowing it. Get a credit card that rounds up on purchases and puts the difference into an attached savings account — but pay off the balance monthly.

Live with roommates to reduce rent, a choice some of Kashian's younger tech clients have made. Getting a raise? Stash away your additional take-home pay rather than upping your lifestyle.

Sock away as much money as you can in your workplace 401(k) plan or start a Roth IRA through a brokerage firm. The key is to leave the stock, mutual funds or exchange-traded funds invested through the market's ups and downs.

"A dollar saved at 22 in a 401(k) plan is like $1,000 saved at 55 years old," said John Schonberg, Stonebridge Capital Advisors' chief investment officer. "It's so powerful because you have so many years to grow that contribution."

To start investing when money's tight, advisors say to designate the minimum in order to receive the full company match, then gradually increase annually until you can max contributions. If that's not possible, even $10 or $15 a week will grow substantially over 30 to 40 years.

Kashian advises striving to build a retirement fund that's the equivalent of a 20% down payment on a Twin Cities median priced home at $315,000. Estimate home maintenance costs annually and invest those as well.

"I would rather see people allocating a more significant amount of cash reserve toward that long-term retirement planning with the idea that maybe that home ownership decision's kicked down the road when both their career and geographic decisions are more settled," she said.

"If you're 25 and you have the burden of student loan debt, high car loans and now you go out and buy a house and suddenly you're offered the opportunity of a lifetime to move to Paris and work as a pastry chef assistant, you can't do it because you have all this responsibility and none of the flexibility."