10 Finance “Rules” You Can Stop Following Now

Personal finance advice is everywhere, and some people take it as gospel. But just because something is widely accepted doesn’t mean it’s the best approach for you. Over time, some “rules” can actually hold you back or make money management more stressful than it needs to be. Here are ten finance rules you can stop following now to simplify your financial life and make smarter decisions.

You Have to Save 20% of Your Income

Saving 20% of your income is very common advice. While that’s a great goal, it’s not always realistic or necessary for everyone. Depending on your financial situation, saving less or more might work better for you. The key is to start saving consistently, even if it’s just a small percentage, and increase the amount over time as your situation improves. Focus on building good habits, not on hitting an arbitrary percentage.

You Must Have a Credit Card to Build Credit

A lot of people think they need to use a credit card to build credit, but that’s not true. While credit cards can help, they’re not the only way to establish a solid credit history. Alternatives like credit builder loans or becoming an authorized user on someone else’s card can also boost your credit. Just make sure you’re using whatever method you choose responsibly and staying on top of payments.

You Should Always Buy a New Car

Many people think a new car is the best investment, but it’s actually one of the worst financial decisions you can make. New cars lose value quickly, with some models losing up to 20% of their value the moment you drive them off the lot. A used car in good condition can save you thousands of dollars while still serving your needs. Consider buying a reliable used car instead of splurging on something brand new.

Your Emergency Fund Should Be 6 Months of Expenses

Having an emergency fund is essential, but the advice that it should be six months’ worth of expenses isn’t one-size-fits-all. The right amount depends on your job stability, health, and lifestyle. If you have a steady income or a partner to lean on, you may be fine with a smaller emergency fund. On the other hand, if your job is unstable or you have dependents, you may want to save more. Tailor your emergency fund to your specific needs.

You Must Avoid Debt at All Costs

While excessive debt is definitely something to avoid, some forms of debt can be beneficial, like a mortgage or student loans that help you invest in your future. The key is managing your debt wisely. Having a manageable amount of debt and making timely payments can actually improve your credit score and help you qualify for better loans down the road. It’s all about balancing good debt with bad debt and using it strategically.

You Should Pay Off Your Mortgage Early

Paying off your mortgage early seems like a great goal, but it’s not always the best financial move. If your mortgage has a low interest rate, you may be better off investing that extra money in other high-return assets like retirement accounts or stocks. The money you would use to pay off the mortgage early could potentially earn more for you in the market, which is a smarter use of your funds. It’s about prioritizing where your money works hardest for you.

You Need a Financial Advisor

While financial advisors can be helpful, they’re not always necessary. With the abundance of personal finance resources available today, you can make informed decisions on your own. Tools like budgeting apps, retirement calculators, and investment platforms can help you manage your finances effectively without the added cost of hiring someone. If you feel comfortable handling your finances, you might not need an advisor at all, or you can opt for low-cost robo-advisors.

Renting is Always Throwing Away Money

The common belief is that renting is just throwing money away and that owning a home is always a better investment. But owning a home comes with expenses like property taxes, maintenance, and insurance, which renting doesn’t require. Depending on where you live, renting can often be cheaper and more flexible than buying, especially when you consider upfront costs like a down payment. The decision to rent or buy depends on your personal situation, not on what others tell you is the “right” choice.

You Must Contribute to Your 401(k) to Retire Comfortably

While a 401(k) is a popular way to save for retirement, it’s not the only option. Other retirement accounts, like IRAs (Individual Retirement Accounts), can offer similar benefits and sometimes even better investment options. If your employer doesn’t offer a 401(k) match, you might want to prioritize other accounts with lower fees or better options. The key is saving for retirement, not necessarily using a 401(k).

You Should Only Buy What You Can Afford in Cash

While it’s important to live within your means, the idea that you should only buy things with cash can limit your financial flexibility. For major purchases like a home or car, financing can actually be a smart move if you’re getting a good interest rate. Just make sure the debt is manageable and that you’re not stretching yourself too thin. Financing can help you build credit and give you the flexibility to invest your cash elsewhere.

You Need a 20% Down Payment to Buy a Home

The idea that you need 20% down to buy a home is outdated. While a 20% down payment may help you avoid private mortgage insurance (PMI), there are plenty of loan options that require less upfront. FHA loans, for example, can let you buy a home with as little as 3.5% down. If you have a smaller down payment, you can still get into a home, but just be aware of the extra costs, like PMI, that might come with a smaller down payment.

Rethink Your Financial “Rules”

Finance advice is all around us, and it’s easy to feel like you have to follow every rule. But not all financial strategies are created equal. By questioning these common “rules,” you can find what truly works for your personal situation. Don’t be afraid to break away from conventional wisdom and create a financial strategy that fits your lifestyle, goals, and needs!

10 Money Rules You Were Taught That No Longer Work Today

Money management advice that worked 20 or 30 years ago is outdated in today’s fast-moving economy. You’ve got to rethink how you save, spend, and invest if you want to stay ahead. Here are 10 old money rules that don’t cut it anymore. 10 Money Rules You Were Taught That No Longer Work Today