Here are some money rules you can break!
“Rules are made to be broken” is an old saying we hear often. In life, there are certain rules you should never break under any circumstances. For instance, not picking up your dog’s waste in the park or bringing uninvited guests to a wedding The same goes for returning an object someone lent to you or crossing the zebra on the green light.
When it comes to personal finance, there are also regulations that you should follow to manage your money so you can live a comfortable life. But like everything else in life, there are some money rules you can break, especially during a financial crisis.
We often hear how important it is to start saving and creating a budget early. The ability to handle your finances wisely is one of the most valuable skills you can have, as it’s crucial for your mental, physical, and financial well-being.
However, sometimes learning how to keep your finances on track can mean unlearning things you already know. This being said, here are some money rules you can break!
1. Myth: Always pay yourself first
One of the most common tips from money-saving experts is to pay yourself first. It means you should put money in your savings account as soon as you receive your paycheck, so you can ensure you put something aside each month. While this may sound great, this is one of those money rules you can break. In fact, according to experts, sometimes you should break this rule.
The issue with this idea of paying yourself first is that many people graduate from college burdened with credit card debt and student loans, even before they get their first full-time job. If your savings grow at 1% interest but your credit cards are charging you 18% interest, you’re not benefiting from cash in the bank.
A better idea would be to pay off your credit card balances as soon as you can afford to (experts say you should start with your highest-interest cards first). Once they’re back to $0, any money-saving expert will tell you to use the rule mentioned above and then buy the things you need or want with the rest of your money.
2. Myth: The less debt you have, the better your credit report
If someone who has a small amount of debt is someone who’s managing their money responsibly and who has a good credit score as a result, it’s safe to say that no debt is even better, right? Well, wrong.
According to experts, staying out of debt is wonderful for your financial well-being but not so wonderful for your credit rating. In other words, this is one of the money rules you can break, and you definitely should in times of financial crisis.
Basically, if you haven’t borrowed anything, you’re not giving any information for the credit bureau to score you on.
A better idea would be to open a no-fee credit card and use it to charge only what you can pay off each month. Another option would be to take out a car loan and aim to stay on top of your payments.
3. Myth: Coupons and other grocery techniques are great money-saving tips
Next on our list of money rules you can break is the one saying that coupons can help you save a lot.
You’ve probably seen those people on TV with their massive bags of coupons, multiple apps, price-tracking notebooks, and their storage shelves packed with personal-care items, paper products, and canned goods.
This isn’t wrong, though, but personal finance experts point out that this is one of the money rules you can break because there are other ways to save cash on groceries. Moreover, they say you should consider two things before you dive into coupon collecting.
No. 1 is: How much is your time worth? Coupon collecting usually implies cutting, sorting, and filing coupons; doing price comparisons; and driving to different stores. You’ll have to do all of that every week, and it takes a couple of hours.
No. 2 is: Are these items you really want to buy? Even with a sale and a coupon, the nationally advertised brand of cookies may cost more than the store brand—and chances are that they come out of the same factory.
Similar to other money rules you can break, there are alternatives you can try. For example, your favorite grocery store probably has a loyalty program that will offer you the best available price. Subscribe to it, track your purchases, and receive coupons (by phone or mail) on the things to buy frequently.
4. Myth: All debt is bad
This is one of the most interesting money rules you can break. Most people think all debt is bad. What are you borrowing for? A home mortgage, credit to start a business, a student loan, or a loan to get you to your job are investments in your future.
The same doesn’t apply to the $10,000 credit card balance that showed one cute new outfit, one state-of-the-art mobile phone, or one restaurant meal at a time.
This is one of those money rules you can break and actually end up benefiting from your choice. Moreover, personal finance experts agree that education loans are “good debt”. For instance, in 2015, college graduates earned 56% more, on average, than high school graduates over their lifetimes.
So, stop thinking that all debt is bad and start seeing interest as the cost of money over time. This way, it becomes easier to assess the merits of different kinds of borrowing. Does that new outfit increase in value or improve your life in a certain way? Is it truly something you want to be making payments for a year from now?
Read on to discover other money rules you can break!
5. Myth: Everybody needs a budget
Creating a budget is a great strategy that can work for some people—if you’re already skilled with this kind of tool. But budgets can be pretty difficult if you’re just getting started as a couple, you’re a new graduate, or you work as a salesperson or freelancer whose income fluctuates from month to month.
In other words, you should look at this idea as one of those money rules you can break. In fact, many of us don’t like spreadsheets and spending limits. If that sounds familiar, don’t beat yourself up over it.
According to personal finance experts, people will try to create a budget, and then after a few months, they lose their mind and hate it. Similar to any other program—a solemn vow to hit the gym every day or a weight-loss diet—if you feel compelled to stick to a budget, you’ll eventually resent it and stop doing it. The worst part? You’ll also feel like a failure.
A better alternative would be to track your spending using a free app or a spreadsheet with your favorite categories. What’s great about money-management tools and apps is that they let you link your accounts so transactions load automatically.
As long as you know what your usual spending patterns are and where your money goes, you can spot an issue or adjust your spending to cover a shortfall.
6. Myth: Investing is only for the experienced and wealthy
The next entry on our list of money rules you can break is a common belief that says only those with money and experience can invest. But this is far from true.
It’s understandable if the thought of Wall Street makes your head spin. However, you don’t need a degree in business to make money in stocks. Every personal finance expert will tell you that investing some of your savings in the stock market is a wise way to increase your net worth.
This being said, this isn’t just one of those money rules you can break; you also should do that. There are two ways to invest for regular people.
One approach is to invest for the long term—even a down or volatile market will settle back into regular gains, so don’t freak out and sell all your holdings if Wall Street has an awful day.
Another approach would be to invest in index funds, which hold a variety of different bonds and stocks, diffusing risk and mimicking the performance of indexes such as the Standard & Poor’s 500 or the Russell 2000 small-cap index.
Fortunately, similar to other money rules you can break, there’s a better alternative to this one. Open an account at one of the discount brokerages, like Ally or Charles Schwab. These companies specialize in helping rookie investors through the process of opening accounts and picking investments, and their sites offer calculators, free research, and other tools.
If you’re new to this game, this book can help you become familiar with stocks and funds.
7. Myth: When you retire, consider a withdrawal of 4% of your portfolio, then make annual adjustments for inflation
The so-called 4% rule calls for a retired senior to make annual inflation-adjusted withdrawals and rest assured the portfolio will last 30 years. However, as with other money rules you can break, there are certain conditions under which you can forget about this 4% rule.
According to experts, if your retirement plan isn’t a smooth glide path, you should actually break it. Retirees may prefer making larger withdrawals in good times and reducing them when things are tough, or varying distributions based on their investment results.
Adjustments should also be made according to other sources of income. For instance, experts say that some retirees may withdraw more at first and delay collecting Social Security benefits, but then withdraw less once the retirement benefit kicks in.
If you liked our article on money rules you can break, you may also want to read Cut Your Credit Card Bills in Half: 4 Things I Did to Stop Myself From Overspending.
