13 Money Rules You Don't Have To Follow, According To Finance Experts
For the second year in a row, Bustle is bringing you Rule Breakers, a celebration of women and non-binary individuals who defy expectations at every turn — and are making the world a better place for it. As a lead-up to our Rule Breakers 2019 issue launching Aug. 27, we’re bringing back some of our favorite pieces by and about those who refuse to do what they’re told. Because challenging the status quo isn't just a once-a-year thing, it's an ongoing mission. These stories prove it.
When it comes to money, everyone has a different mindset depending on their unique experiences, and what they learn along the way while navigating life. For instance, while you were growing up, your parents may have gotten you into the habit of putting money into a savings account every week or month. But, these days, so many savings accounts are not high-yield (meaning they have low-interest rates) that people are choosing to invest their money in other ways, such as in IRAs and stocks. So, even if you used to have certain money habits, there are several money rules you don’t have to follow anymore.
“The personal finance world has changed so much over the last decade that we need an entirely new set of rules to guide us,” Kimberly Palmer, personal finance expert at NerdWallet, tells Bustle. “Many of the old rules that our parents followed are outdated, simply because our situation is different and the financial products available to us are, too.”
For instance, many millennials’ parents didn’t graduate with as much student loan debt as is common today, she adds. “Plus, they didn’t have access to peer-to-peer payment apps like Venmo or the ability to apply for credit cards that earn travel rewards or cash back to help stretch their budgets,” she says.
If you’re wondering what those old money rules are that you no longer have to follow, finance experts weigh in below. Here are 13 outdated pieces of advice you should stop paying attention to, now.
Rule #1: Always Avoid Credit Card Debt
While you may hear people tell you to avoid credit card debt, Palmer believes this is a money rule that can be broken — within reason. “The problem with this rule is that it does not always make financial sense to follow it,” she tells Bustle. “For example, if you are facing a large cost, such as paying for pricey emergency dental care, you may suddenly need to pay thousands of dollars that you don’t have in savings.”
Palmer says that, in this case, getting a credit card with a low annual percentage rate (APR), such as 0%, can be a huge help. “You can put the charge on the card and then pay it off over time, before the introductory rate expires, which is typically 12 to 15 months,” she says. “That’s why it can make sense to break this money rule.”
Rule #2: If You Want To Invest, You Need A Lot Of Money To Get Started
The word “invest” may seem intimidating if you’ve never done it before, but it’s nothing to be afraid of — and you also don’t need a lot of money to begin with. Dave Nugent, head of investments at Wealthsimple, a robo-advisor aimed at millennials and first-time investors, agrees. “New investing apps, such as Wealthsimple, have made it simple to get started with no account minimum,” he tells Bustle. “Getting set up with a balanced portfolio takes five minutes, payments can be automatically set up, and you can check in on your account as little or as often as you want — and all from your phone.”
Katharine Perry, CFP, financial consultant at Fort Pitt Capital Group in Pittsburgh, Penn., also says that many people miss an easy way to invest by not taking advantage of the employer match on their retirement plans. “Not taking advantage is like saying ‘no’ to free money,” she tells Bustle.
Rule #3: You And Your Partner Can Work Out Your Money Issues *After* You’re Married Or Move In Together
You’ve probably heard that money issues are a top reason for marriages ending, so the sooner you and your partner talk openly about money, the better. “Many couples receive marriage counseling before their wedding in hopes of avoiding or dealing with the trials that come with matrimony,” Terry Siman, CFP and managing director at United Capital’s Philadelphia office, tells Bustle. “But we know many marriages fail due to financial stress, too.” He says it is every bit important to openly discuss finances with a soon-to-be life partner if you want to find common ground and mutual respect — and not go broke.
Similarly, you may know couples who move in together to save money, but this is also not a good financial decision. Although it can potentially save you both money, there are many other factors to consider, according to Anna Colton, a Merrill Edge executive. “Before assuming this kind of move will save you money, have an open, honest conversation with your partner about their current finances, long- and short-term financial goals, and how you will handle the expenses that come with moving and living together as a couple,” she tells Bustle. “You may learn they have less income than you do or are working to pay off debt, like student loans, a credit card bill, or an unexpected medical expense, which may impact how much they are able to put toward living costs.”
Rule #4: You Should Buy A House Or Condo As Soon As Possible, Not Rent
While you may have grown up envisioning the perfect house you’d like to buy someday, the more adulting you’ve done, the more you’ve realized that you cannot get that house just yet — which is perfectly OK. Rachel Cruze, #1 New York Times best-selling author, personal finance expert, and host of The Rachel Cruze Show, agrees. She says even if you want that cute little house with the red door and white picket fence, and you want to live in it the day you return from your honeymoon, you need to ask yourself if you’re really ready.
“Your dream house could quickly turn into a nightmare if you take out a mortgage before you can afford one,” she tells Bustle. “Instead, take your time and rent until you can put down at least a 10 percent down payment — and waiting until you have 20 percent is even better because you won’t have to pay private mortgage insurance (PMI).” She also advises that your payment shouldn’t be more than 25 to 30 percent of your total income.
Chelsea Hudson, personal finance expert at TopCashback.com, also believes renting — versus buying — is fine and may be the better financially responsible option. “Renting has a negative stigma, as those who rent are just ‘throwing away money’ versus building equity in a home,” she tells Bustle. “However, changes in the housing market and taxes make it more difficult for owning a home to be the sure-fire way of accumulating wealth.” She also says a lot of additional costs come up when owning a home, including homeowners insurance, community fees, repairs, and more.
Rule #5: Pay Yourself First
When it comes to saving money, you may often hear people say “pay yourself first.” However, Adam Jusko, founder and CEO of ProudMoney.com, says this is a money rule that can be broken. “‘Pay yourself first’ has become sort of a personal finance mantra, the goal being to save and invest a piece of everything you make before you pay your other bills,” he tells Bustle. “While making saving a priority is obviously desirable, if you are sitting on a mountain of high-interest debt, or if you’re not making enough money to cover your crucial expenses (food and shelter mainly), paying yourself first will actually mean paying a lot more in the long run in interest and penalties.”
Instead, he says to create a budget that details what you absolutely must pay every month, and pay off your high-interest debt, especially credit cards, with the remainder before you worry about paying yourself first.
Rule #6: Close Your Credit Cards If You’re Not Using Them
Personal finance expert Janet Alvarez of Wise Bread, a financial advice website that promotes “living large on a small budget,” advises not to close your credit cards. “Don’t close your credit cards — even once you pay them off,” she tells Bustle. “This reduces the amount of credit you have available, which lowers your credit score.”
She also suggests making two payments per month versus one — if you normally make one monthly payment of $100, try making two payments of $50 each. “Since interest is calculated over the entire month, this will reduce your interest owed,” she says. “Plus, depending on what time of the month your card reports to the credit bureaus, it may also show a lower debt level and boost your score.”
Jennifer McDermott, consumer advocate for personal finance comparison website, finder.com, agrees that you should not get rid of your credit cards. “Paying with plastic is often looked upon as irresponsible, but if you are smart about how you use your credit card, it actually does a lot of good for your finances,” she tells Bustle. “Keeping your utilization low (using less than 50 percent of your limit) and paying off your balance each month will be a much bigger boost to your credit score than if you didn’t have a card at all.” She adds that there are also lots of rewards to benefit from, and that one in three Americans use credit cards solely for points.
Rule #7: You Shouldn’t Discuss Your Income Or Salary With Others
While discussing money issues, like your salary, used to be taboo, it no longer is — or shouldn’t be, according to Lorna Sabbia, head of retirement and personal wealth solutions for Bank of America Merrill Lynch. “Avoiding discussing topics — such as salary, income, assets, and our broader financial situation — may be severely compromising our financial wellness, particularly among women,” she tells Bustle.
“For example, 61 percent of women would rather talk about their own death than talk about money, a recent study by Merrill Lynch and Age Wave finds. And, 45 percent of women say they do not have a financial role model.” Hence, Sabbia feels money conversations, including financial goals and benchmarks, must happen between you and friends, family, financial professionals, employers, and professionals.
Sabbia says that talking about the gender wage gap, too is equally important. “Women have fundamentally different financial journeys than men, and the challenges they face need to be acknowledged and frankly discussed,” she says. “Having candid conversations about topics like the wage gap, the financial effects of career breaks, as well as women’s longer retirements and higher health care costs, is key.”
Rule #8: It’s Good To Get A Big Tax Refund
While you may like the looks of a big check from the IRS, it’s a money rule you don’t have to follow. Misty Lynch, a John Hancock financial advisor consulting for Twine, says. “When I first started working, I loved getting a big tax return,” she tells Bustle. She says that when you live paycheck-to-paycheck, it’s often hard to save up a large sum of money, so getting a big return may be a nice way to boost your savings.
“However, instead, make sure you calculate your withholding so you deduct just as much as you need to — for instance, ensuring your total withholding is a '1' instead of 0'" Lynch says. “That way, more money goes to you every paycheck instead of paying more taxes than you should, which is like you lending that money to the government for free. While you do get it all back in the form of a tax refund, the government got to borrow it for free and not pay you any interest.” She says to make sure to pay attention, though, so you aren’t keeping too much and then get stuck with a big bill at tax time.
Rule #9: You Don’t Need To Save For Retirement In Your 20s, Especially Not With Your First Job
Yes, it’s difficult to think about the future decades from now when you’re at your first job. However, it’s fiscally responsible to do so. For instance, Merrill Lynch’s 2017 Workplace Benefits Report found that 64 percent of employees are worried about running out of money in retirement. So, it’s beneficial to start saving now.
“No matter what your salary or income is, you should seriously consider investing in the future as soon as you enter the workforce,” Colton says. “Even if retirement is not on your radar yet, it’s important to start saving for this potential milestone early, because the more time you allow your money to grow, the easier it may be to pursue your goals in the future.”
Colton also has some suggestions for saving for retirement, including taking advantage of any 401(k) matches your employer offers and, if not, investing in a Roth IRA, an individual retirement account, which is best for those who are further from retirement (since it’s more potential income that will never be taxed). She also says it’s good to have additional savings accounts, too, for future vacations, your emergency fund, and a rainy-day fund.
Rule #10: Don’t Spend Money On Seemingly Frivolous Things
Although you may stick to a budget most of the time, other times, you may spend money on bigger purchases that you may not need, but want. “Every financial expert will tell you to stop spending money frivolously on things you don’t need because it can lead to severe credit card debt and a poor credit score,” Hudson says. “If you splurge too often, you find yourself drowning and losing focus of your financial goals — maybe you want to save for an emergency fund. However, it is OK to treat yourself once in a while, especially if it is on experiences, not things.” To that point, Hudson says there are several studies proving that time spent away from the office and vacations make you more productive.
Rule #11: Get Rid Of Your Debt Before You Save
Although you may have so much debt that you cannot see the point of saving money too, this is an outdated money rule, Dustin Jacobs, VP of marketing for BrightStar Credit Union, says. “While paying off a high-interest credit card should almost always be your priority, there are times when you need to prioritize saving over paying off your debt, such as building an emergency fund,” he tells Bustle.
Rule #12: Pay Off Debts With The Highest Interest Rates First
Although it may be tempting to first pay off debts with the highest interest rates, it’s no longer a money “rule” to follow. Instead, Cruze suggests using the Debt Snowball Method. “List your debts smallest to largest, regardless of the interest rates,” she says. “Attack the smallest debt with every dollar you have, while making minimum payments on everything else. Once the smallest is paid off, roll everything you were paying on the first debt to the next smallest debt.” Then, you keep going until you’re completely debt-free, she says.
Rule #13: It’s OK To Charge Something You Cannot Afford Now
At times, you may have a big expense you need to charge on your credit card, like an unexpected medical bill. But for day-to-day purchases, Jason Reposa, the CEO and co-founder of MyBankTracker, says not to charge things you cannot afford right now. “Don’t use your credit card like a bank account,” he tells Bustle. “If you don’t have enough money in your bank account to make the purchase, putting it on a credit card just kicks the can down the road — in other words, it means you can’t afford to spend the money.”
As you can see, there are many old-school money rules you don’t have to follow today. When it comes to your finances, breaking the rules can actually make you money. How cool is that?