We know you want to be financially responsible. You might even know there are best practices for getting there. Read on to find out if these rules make sense in your life.
There are many financial rules we’ve all heard over and over again. But many of these rules aren’t perfect or don’t apply to every person’s individual situation. Instead of blindly following rules that someone else made, take the opportunity to consider a few counterarguments. You might find a better alternative to what you’re currently doing with your money.
Consider whether or not these financial rules make sense to you:
Cutting expenses is the key to long-term financial success.Most of the well-known personal finance gurus focus on cutting expenses and saving money. While there’s no reason to spend money unnecessarily, there’s only so much you can cut from your expenses. Then you’re stuck with no further room for growth and a potentially less than enjoyable lifestyle.
- Few of these financial gurus mention the other side of the equation. How about increasing your income? After a certain point, it’s much easier to increase your income by $300 per month than to cut another $300 each month from your bills. This might mean finding yourself another job. In fact, it most definitely will involve that.
- Take the time to trim your expenses to a reasonable level and then focus your efforts on creating more income. A promotion, a new job, or a second job can be easier to accomplish with less effort and grief than making further budget cuts at home. We like to see you focus on the positive and not the negative.
Leasing a car is always the wrong choice.Cars today last an average of over eleven years. That’s a long time. If you like to keep a car until it’s ready for permanent retirement, buying is the best option. However, if you like to get a new car every few years, leasing is a much better option.
- There’s no reason to follow anyone’s advice on this topic. Pull out a calculator and do the math yourself. Be sure to consider all the expenses included with both options.
- Do the same exercise with regards to housing. Renting is usually a better option in the short term. If you’re not going anywhere anytime soon, buying is likely to be the best bet.
Do what you love, and the money will follow.This can be a great idea if what you love to do can provide an income and you’re good at it. There are many hobbies and interests that would be exceedingly difficult to turn into a significant source of income.
- You might also find that your hobby ceases to be enjoyable when you’re forced to do it 40+ hours each week and have to do it in a way that earns you money.
- For example, you might love to go bass fishing. But a professional fisherman has to fish standing up, rain or shine, in hot and cold weather, and make a certain number of casts per hour to be competitive. You also have to travel extensively. Many people that love to fish wouldn’t enjoy fishing in that manner.
Always contribute the maximum amount to your 401(k).If you don’t have an emergency account, how will pay for a new transmission or the $4,000 deductible for your broken leg? What if you lose your job? While saving for your 401(k) is important, having money set aside is equally as important.
- There are other expenses that should be considered before putting all of the money into your 401(k) or other retirement accounts. Withdrawing money from a retirement account can result in both penalties and taxes. You can’t always put the money back in, either.
These are just a few of the common financial rules that you should consider breaking. No rule applies to all situations. Examine the rules you’ve been following and see if they make sense for your financial situation.
Have you ever wondered if the traditional “rules of thumb” about how to make financial independence could be harming your chances? What you thought should do may not actually be what will work for you. If so, we want to talk with you more and find out why these tried-and-true methods aren't working for your goals. We know that there are many possible reasons this might happen but it's important to get a dialogue started immediately in order to uncover any potential red flags before they derail your future plans.
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