There are many financial rules we’ve all heard over and over again. But some of these rules aren’t perfect or don’t apply well to individual situations. Instead of blindly following general financial rules that someone else made, consider how they impact you with these counter perspectives:
1. 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 can come a point where you can only cut so much from your expenses. Then you’re stuck with no further room for cuts and a potentially stifling lifestyle. Spending less than you earn is important but few of these financial gurus mention the other side of the equation — earning more than you spend. How about increasing your income? Yes, take the time to trim your expenses but don’t ignore the possibility of creating more income. A promotion, a new job, or a second job may be easier to accomplish than making further budget cuts.
2. 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 usually the best option. However, if you like to get a new car every few years, leasing is probably a better option. This is a case where each situation will vary. Pull out a calculator and do the math yourself. Be sure to consider all the expenses included with both options. You can do the same exercise with housing. Renting is usually the better option if your needs are short-term, but in some cases, even longer term situations can place renting ahead of owning. Again, don’t be selective in your analysis. Run all of the direct and indirect expenses associated with each as well as the intangible benefits with each.
3. 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 way that earns you money. Making sure you love what you do is great, but make sure you can get adequately compensated for it.
4. Always contribute the maximum amount into your 401(k).
Before you fund your 401(k) make sure you aren’t setting yourself up for bigger problems. Do you have debts with high interest that need to be paid down? Do you have a cash reserves set a side? If not, how will pay for an emergency? What if you lose your job? Are the investment choices in your plan lousy and expensive? Withdrawing money from a retirement account can result in both penalties and taxes. So, before you put the maximum into your 401(k) or other retirement accounts, your needs should be prioritized and the retirement plan should be evaluated.
These are just a few of the common financial rules that you might consider breaking. Your situation is unique so no financial rule should be applied to everyone. Whenever you hear a financial rule, consider whether or not it make sense to you. You might find a better alternative.