Some money rules are hard and fast, like the golden rules of credit cards and living below your means. Others are more up for debate…
When I was a kid, whatever my parents told me not to do, I immediately wanted to do. Whether it was to not eat candy before dinner, or to not ride my skateboard inside the house (I put a hole in the wall), there’s something about rules that often makes us want to break them!
But which money rules are safe to break without launching yourself into financial ruin?
The 8 Money Rules You Should Break
If you’ve got an inner rebel like me, don’t be afraid to let it out. In this post, we’re covering 8 popular money rules, and when it’s okay to break with convention. Let’s dive in! 😤
1. Always put 20% down on a house
Putting a 20% down payment on a house is typically the best move. Doing so will reduce your monthly costs and help you to avoid having to pay PMI or private mortgage insurance, which can cost you around 1% of the overall mortgage cost annually.
That being said, there are some situations where putting down less is okay. If you’re planning to house hack, or to eventually use that home as a rental property, having that 20% stashed away becomes less important. That’s because the incoming cash flow you’ll gain from renting it out will offset the additional monthly costs that a smaller down payment will require.
2. Don’t buy coffee out
Sure, if you replace your daily iced mochaccino with coffee straight outta the Keurig, you can save a few hundred bucks every month. But you could also be missing out on something that makes you look forward to getting out the door on your way to work. Plus, I’ll be the only finance writer to admit that it just never. tastes. the. same.
While treating yourself every day to coffee out can be a slippery slope, instead of going cold turkey, try limiting coffee shop visits to twice a week. It can give you something to look forward to, as well as ensure that you are using your money to add some magic to your everyday life.
Plus, getting coffee out less often will ensure that the novelty of the coffee shop experience doesn’t wear off, making each hand-crafted latte taste even better while helping you avoid the nefarious potential of lifestyle creep.
3. Always max out your retirement accounts
You might hear your coworkers, or even the HR department at work, tell you that it’s a good idea to always max out your retirement accounts. While investing for retirement is quite important, it may not always be the most important financial goal to focus on!
For example, you may choose to prioritize saving up an emergency fund if you don’t already have one, or paying off high-interest debt once you’ve taken advantage of your employer match.
It can be confusing to figure out what personal finance goals you should focus on first. That’s why we recommend checking out the 7 money gears to decide what personal money goals are best to prioritize for your current financial situation.
4. Spend less than 30% of your income on housing
While spending less than 30% of your income on housing is highly recommended, we know that, depending on where you choose to live, this may not always be possible. If you live in a particularly high cost of living area, it’s okay to spend more than 30% of your income on housing. IF you scale back in other areas of your budget. For example, if you opt to live car-free, you can allocate the money you would otherwise have spent on transportation towards your housing budget.
However, there are ways to reduce the cost of housing even in the most expensive cities. For example, you could consider living with roommates or work towards negotiating your rent.
At the end of the day, just make sure you are sticking to the 50/30/20 budget and spending no more than 50% of your income on needs.
5. Shop sales
While looking for sales on items you planned to purchase anyway can be a great way to save, sales can tempt us to spend money on things we haven’t planned for. That’s why one of our biggest mindful spending tips is to ignore sales altogether when you aren’t shopping for something specific.
Remember that sometimes the best discount is 100% off when you opt not to buy that item in the first place. Don’t splurge on an item you didn’t plan for!
6. Don’t use credit cards
Carrying a credit card balance every month should be avoided at all costs! Especially with credit card interest rates hovering near 20%. But if you have developed responsible credit card habits, these little hunks of plastic can help you earn some sweet rewards!
Using credit cards for your everyday spending is a great way to rack up points or miles, which can be redeemed for free travel, cash back, or other worthwhile experiences.
7. Pay off high-interest-rate debt first
While “numbers-wise” paying off high-interest debt first can save you the most money, the best debt payoff plan is the one that works. If that means utilizing the debt snowball method instead of the debt avalanche, so be it! For some folks, getting some quick wins under your belt can give you the motivation to crush that debt more quickly!
Remember, so much of money is psychological. The boost you’ll get by paying off some of your smaller debts can be powerful. Celebrate those small victories and keep the momentum going!
8. Take the higher-paying job
While a higher income can help you to build wealth more quickly, it’s not always about the money! Life is too short to spend 40 hours a week doing something you hate. It’s okay to take a pay cut to work a job that leaves you feeling more fulfilled. You can always decrease your spending by negotiating your bills and using frugal hacks to make up the difference.
Also, be sure to take into consideration the full compensation package. Benefits like health insurance, retirement contributions, and flexible schedules can add significant value. Each of those additional perks can help to make up the difference of a lower salary.
The Bottom Line:
Now, before you run off and start breaking all of the personal finance rules in the name of YOLO, remember that each personal finance decision requires nuance. That’s because none of our financial situations look exactly the same. Not all rules were made to be broken, even if bending some of them might make sense on occasion.
The methods of building wealth that work for others may not fit into your life or align with your particular goals, and that’s normal! It’s all about finding what works best for you and your family- even if it means breaking a few rules here and there.
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