Is it Ever OK to Ignore These Money Rules?

The personal finance realm may have more guidelines and money rules to follow than any other community. Thousands of PF bloggers will give you advice at the drop of a hat (including me!). Although these rules of thumb are always good to know about, everyone has individual circumstances, particularly younger people. Because of those circumstances, sometimes you just have to ask yourself a really big question:“Is it ever OK to bend or even break personal finance rules?”

While personal finance is full of money rules, sometimes you should ignore them because of your individual circumstances. Read on for some of those times.

Why Breaking the Rules May Make Sense

First of all, personal finance isn’t an all-or-nothing practice. Good financial planning involves balance and attentiveness to details of your own unique situation. For example, if your debt is one that’s charging low interest, it might be better to pay the debt off slowly in favor of saving money first (such as for retirement, an emergency fund, or a major expense).

When I graduated college, I had some student loans that had to be repaid. The interest rate was very low (3.0%) and I had 10 years to pay it off back then. I proceeded to take the full 10 years and pay just $31 a month, which by the end of that timeframe (1983) was practically nothing and amounted to less than half of 1% of my annual income. In the meantime, I was using my money to fund my IRA at work and getting a 6% match from my company to boot. That’s the choice I made for my own unique situation.

(Remember: compound interest on savings has immense value, so the more money you can invest earlier in life, the less money you’ll need to invest overall.)

So, having said all that, here are some rules that you are never supposed to break, but you should consider breaking anyway! It may just be a better way.

Money Rules You Might Want to Ignore

Rule A: You should save for retirement and invest a set portion of your income every week (like 10%)

An ideal budget includes saving a small amount of your pay every week for retirement—usually around 10% or as high as 20%. While being fiscally responsible at a young age is important and thinking about your future is crucial, the general rule of saving a given amount each period for your retirement may not be the best choice for young people who are just getting started in the real world.

Why break Rule A?

First, many young adults and students need to think about paying for the biggest expenses of their lifetime, such as a new car, a home or post-secondary education. Taking away potentially 10% to 20% of available funds would be a definite setback in making any of those purchases.

Additionally, saving for retirement doesn’t make a whole lot of sense if you have big credit card or interest bearing loans that need to be paid off. The 24% interest rate on your Visa would probably negate the returns you get from your balanced mutual fund retirement portfolio, five times over.

There is also this to consider: saving that money for travel and the experience of new places and cultures is an extremely rewarding experience (especially for a young person who’s still not quite sure about his or her path in life). Sometimes travel can open up eyes to new career opportunities or at the very least may be the very best time in life to explore the world if your health and your responsibilities allow it!

Rule B: Be a long-term investor and avoid being a risk taker

The rule of thumb for young investors is that they should have a long-term outlook and stick to a buy-and-hold philosophy. This rule is one of the easier ones to justify breaking. Being able to adapt to changing markets can be the difference between making money and limiting your losses, compared to sitting idly by and watching as your hard-earned savings shrink. Short-term investing has advantages at any age.

Why break Rule B?

Don’t be married to the idea of only long-term investing; you can find good short-term investments, as well. The logic in the past was since young investors have such a long investment time horizon, they should be investing in higher-risk ventures, since they have the rest of their lives to recover from any losses they may suffer. If you don’t want to take on undue risk in any short- to medium-term investments, you don’t have to. The idea of diversification is an important part of creating a strong investment portfolio. This includes both the riskiness of individual stocks and the intended investment horizon.

Rule C: Don’t ever borrow money to make an investment

Borrowing money to invest is known as leveraging, and is generally considered very risky. If your investment declines in value, you’ve still got a full debt-load and a disproportionately low asset to show for it.

Why break Rule C?

If the investment is tax-deductible and/or the loan is low-interest (which might also be tax deductible), the tax saved can equal more than the interest you are paying on the loan. You can work this scenario to your benefit and then use your tax refund to pay off your debt more efficiently.

Rule D: Don’t use credit cards

An awful lot of us have problems controlling ourselves when it comes to using our credit cards. The debt from overuse of cards is accumulating by the day and breaks records all the time as we use them for just about everything from morning coffee to trips around the world. It makes you wonder how anyone ever lived without them.

Why break Rule D?

Using credit cards responsibly can actually be beneficial if you’re collecting things like frequent flyer miles or other credit card rewards that allow you to get real extra value from charging your expenses. The trick is to pay the entire balance off as soon as you receive your statement. That way you don’t accrue any interest and you will avoid the credit card debt (or is it death?) trap.

Rule E: All tax refunds are good

Here I go again. A tax refund means the government is holding onto your money (and earning interest on it) during the course of the year! That’s money that you should have had in your hands all year long!

I once had a client who loved to get tax refunds so much that she deliberately overpaid her taxes each year through payroll withholding just so she could get a big refund! (It was inevitably squandered away since she saw it as “found money”.)

Why break Rule E?

Selecting fewer exemptions on your tax forms at work puts more into you paycheck and gives you money without waiting for a tax refund of your own funds! It is even more important this year after the “tax cuts” which can have a big impact on tax burden for 2018. When you don’t get a fat tax refund in the end, you’ll have more money in your pocket now and will be less likely to splurge than you would with the “found money” of a refund. You just need to adjust the form at work to change your situation.

Rule F: Leasing a car is a really bad deal

The general school of thought is that leasing a car costs you more money (after all is said and done) than buying one outright. Depending on your own unique situation however, this might not be true.

Why break Rule F?

If you can deduct your car as a business expense, leasing could reduce your income and increase your cash flow more effectively than deducting the capital costs of buying a car. Also, if your business is new and cash flow is tight, leasing might get you into a necessary set of wheels for a lower monthly expenditure than buying. You can get “more” car for a lower payment when you lease.

Rule G: To invest you need lots of money

How do you think people who have a lot of money got it (if they weren’t born into it)? They probably started small and saved it up and then they invested!

How to break Rule G

Don’t belittle your own finances by thinking you can’t invest or don’t deserve to invest because you don’t have a lot of money. You have to start somewhere, and you can start investing with as little as $25 a month. If you can’t pay for financial advice, you can use one of the very low cost online companies who will actually pay you a startup bonus or free or really low cost fees to trade or invest with them.

Rule H: Having a budget will keep you from overspending

Boy, I really wish it did. But, unless you’re extremely disciplined, it almost always doesn’t. Budgets are more often than not made of abstract categories with arbitrary amounts of money that don’t account for things like surprise or irregular expenses, quarterly payments, and other things in life that just happen. But they can still be useful tools…

To comply with Rule H requires tracking!

More important than a budget (and an essential first step to creating a budget) is keeping track of your expenses so you actually know what you spend. The longer you keep track of your expenses, the better you will understand and be able to control your spending. You can use pencil and paper, your own spreadsheet, an app like HoneyMoney or YNAB or Mint, or even a several-years-old version of Quicken like I do.

Final Thoughts

Financial rules can be and often are very useful in taking the guesswork out of your money issues. But, there are times when the rules just may not apply to you.

Having a groundwork of rules is a good start, but you still need to allow for breathing room whenever life calls for adjustments. A good example is that if you neglected your retirement accounts in your younger years, you’ll need to save more in your forties and fifties just to catch up. You don’t want that to happen.

Getting mired in high-interest debt could call for using more than 20% of your income to pay it off. Or, if you have a particular savings goal such as a home remodel or early retirement, that can change your equation. If you live in the Bay Area or New York City or another high-cost region, you may easily blast 50% of your income on necessities once you take housing into account.

The decisions you make can’t always be scripted by you, me or any one offering you personal finance advice. It always comes down to your very own unique situation, knowledge, and values.

Do you pay close attention to the money rules of personal finance? Do you deviate from those rules by rational thoughts, or are you forced to do so because you have made some really bad decisions? What rule are you breaking right now and is that working for you?

Financially Savvy Saturdays

About Gary Weiner @ Super Saving Tips

Over the last 45 years I've worked in retail (department stores and supermarkets) and financial planning. In addition, I am a shopper, born and bred, who enjoys the challenges of finding the best items for the best prices. When I'm not busy saving money or writing here at Super Saving Tips, I enjoy baseball, music, and classic movies. I am retired and live in New Jersey with my wife.
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17 Comments

  1. I have mixed feelings about Rule A. I know Dave Ramsey says you should not invest or save for retirement unless you are out of debt. But when there’s money on the table from a company 401k match I think saving/investing is still the right move even if you are in debt, as long as you continue to pay down the debt aggressively. If there’s no company match I tend to agree with Dave about putting saving on hold. I think the trick is to view your debt as temporary if that’s possible. If you have $200K in student loan debt it’s a tougher decision.

    • It is very hard to walk away from free money from your employer, no doubt about that. I tend to believe that it makes the most sense though to become debt-free, but the ideal situation would be to try to do both if your situation can tolerate that. It’s a subject that definitely can be debated. Thanks for your comments, Mrs. G.

  2. All good points, and in many cases they condense into “you can afford anything, but just not everything” as one of my favorite personalities, Paula Pant, is known for saying. You can’t break all the rules all the time but as you’ve pointed out there is a reason for each rule and it just may not apply to your situation every time. Plus if Mrs. Groovy said you are right then, sir, you are right!

    • It’s nice to have Mrs. Groovy’s seal of approval…it’s something I really appreciate! When it comes to breaking the rules, it’s going to be different for everyone, so I guess my message here is that you shouldn’t act like everything is written in stone. Sometimes it makes sense to be flexible. Thanks so much, Steve.

  3. We use credit cards–and pay them off every month. As you said it is convenient and I don’t like debit cards. https://racingtowardretirement.blogspot.com/2017/06/are-credit-cards-good-or-bad.html

    We bought a car a two years ago and decided to finance it. The need was unexpected. We had just purchased another one and our reserves were low. We were able to get a rate under 2%. We could have pulled investment money out but honestly we’ve earned far more than 2% per year on that money. I’ll be glad when it is paid for, but can’t say that financing it was wrong.

    I think Roth IRAs are great for young adults who can save a few dollars. If they are able to keep the money in there until they retire, the earnings should be substantial–and tax free. If they need the money for a house or child-rearing expenses, they can get at it.

    I’ve tried other budgeting methods but the one that works for us is “Pay yourself first and don’t bounce checks”. We sent our standard of living below our income and we as long as there is money in the bank, we don’t worrry about the small stuff.

  4. Interesting post. I can see situations in which it’s better to ignore the conventional advice. The one I always struggle with is investing rather than paying down debt. I can see it for lower interest, lower balance debts, but not for larger ones. For instance, I had someone tell me on Twitter that I shouldn’t make extra payments toward a 4% mortgage because I could make more investing. Possibly, but extra payments saves thousands in interest on a mortgage because the balance is so large! I guess debt just really bothers me and I’d rather pay it down or off first.

    • I agree on paying off the mortgage, because it is such a huge psychological boost to get that gone! Also, if a person is in a precarious or uncertain situation, having a paid place to live is a major relief.

      Of course, one does not always know about a potential looming crisis. Perhaps considering how many dependents are relying on the wage-earner/s makes a difference as well. If I had a disabled spouse, elderly parents, small or even teen children living with me, I would want to say, “At least we have a roof and plumbing of our own.”

    • Paying off the mortgage is probably a goal that almost everybody would love to achieve. There are times though when using that money might pay off in other ways. But for me to do that, I’d have to feel really confident that that would happen. You are very right about adding money to the principal payments and it knocking out years of interest. Thanks for your comment, Tawnya.

  5. Nice, Gary. What’s the saying, “a foolish consistency is the hobgoblin of a little mind.” Excellent examples of why some rules of thumb should be ignored. I especially like the credit card one. Why avoid credit cards if you use them responsibly? Wouldn’t you be walking away from a lot of reward points? Oh, and by the way, my student loan payment was low too. And for that reason, I paid it off according to the borrowing terms–$69 a month for 10 years. Cheers, my friend.

    • I really have enjoyed the rewards I’ve been earning from my credit card and it has provided a few nice perks, so I encourage others who can be responsible to definitely do it. It’s also great that you were able to pay off your loan and not suffer a hardship in doing so. I’m not sure that it works that well today with the higher interest rates that the kids are getting and the higher amounts that they have to borrow. It seems they’re not going to be able to cope as well. I appreciate your comments, Mr. G.

  6. Yep, rules are made to be broken (especially that tax refund one — ugh!).

    I never thought about the leased car rule, but I suppose if you do have a business expense then it makes sense.

  7. I agree that there is no cookie cutter approach for everyone when it comes to personal finances. But for me, it’s best to follow “the rules” pretty closely. I understand the rational approach to, say, paying off low interest rates slowly, and paying off credit cards on time … but I never acted very rationally with money despite that understanding. Head knowledge and behaviour can be two very different things. I believe that some people can manage their money well and with complete control while breaking lots of these rules, but I think that for more people, the rational mind is at odds with patterns of behaviour, and breaking the rules ends up being a bad idea. I hope that makes sense.

    • It sure does make sense, Ruth. Following “the rules” is something that I normally advise to anyone who will listen, but I wanted to make the point in this post that since no two of us are absolutely the same, circumstances can sometimes dictate deviating from what is generally considered the right way. Just as in anything that you do, being an extreme operator is highly risky, so it takes a lot of thought before you go off the regular trail. But sometimes, perhaps rarely, it’s a good thing to do. Thanks for giving your opinion…it’s appreciated!

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