5 Money Rules That Might Stay in the Past

Save money for home cost.
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Personal finance do’s, don’ts and “should-be-doing-but-I’m-nots” are ever-evolving. COVID-19 has supercharged that evolution.

“The pandemic has called a lot of financial decisions into question,” said Megan Moore, a vice president at Fidelity Investments. “It has opened people’s eyes to rethinking their finances. Everything is on the table.”

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In some cases, the financial advice hasn’t changed. Americans are just either unwilling or unable to follow it, due to shifting priorities and tough financial times.

“Advice from financial companies and advisors is largely the same,” said Colleen McCreary, a consumer financial advocate for Credit Karma. “Build an emergency fund, have a budget and prioritize paying down debt and saving for the future. These are the fundamentals.”

That said, there’s no shortage of more specific, traditional personal finance guidelines that many Americans are leaving behind. Here are a few of them.

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Save Three Months of Living Expenses in Case of Emergency

It’s hard to imagine the “emergency fund” rule ever completely going away. What’s changing is the recommended amount, with the “three months’ worth” goal seen by some as unattainable and by others as too modest. Phillip Braun, a clinical professor of finance at Northwestern University’s Kellogg School of Management, recommends targeting six months’ worth.

“We’ve seen during the pandemic that these emergencies can be longer-term things,” Braun said.

The three months’ worth goal was already daunting for many.

“Having three months of living expenses saved up should be the minimum amount of money saved up in case of an emergency,” McCreary said. “If the pandemic taught us anything, it’s that you can’t predict what will happen, and you never know when your income might suddenly dry up.

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“In a perfect world, I’d love to suggest everyone have an emergency savings fund to cover six months or more of living expenses, but I know that isn’t the reality for a lot of Americans who live paycheck to paycheck. The best rule of thumb is to pay your savings before you pay yourself when you get your paycheck.”

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The Best Way To Save Money Is by Not Buying Non-Essential Nice Things for Yourself

There are certainly times for cutting back on non-essentials, but experts say the “suck it up and tighten your belt” approach has been supplanted somewhat by an increased emphasis on mental health, and just being more kind to ourselves. Particularly in pandemic times.

“I’ll never tell someone to skip the latte,” McCreary said. “I think it’s equally as important for consumers to spend their hard-earned money on things that bring them joy as it is for them to save. You deserve it. So, if you’re trying to save, don’t forget to factor in a splurge category into your budget. That way you have a set dollar amount to treat yourself for your hard work.” 

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Moore emphasizes the dangers of “mindless” spending and recommends prioritizing things that bring you joy and add value to your life.

“That $5 latte might represent the only 30-minute break you have in your whole day,” Moore said. “It might be money well spent.”

Housing Should Be Just 30% of Your Monthly Income

This common guideline also has fewer takers of late, with rent and other living expenses on the rise. Plus, the increase in remote work has many of us looking for larger (and more expensive) living spaces.

“I think people are starting to push it up to 40%,” Braun said. “If you do that, you might be able to live in a nicer home. But it will cost you in other areas, like retirement savings.”

When You Retire, Spend No More Than 4% of Your Retirement Funds Each Year

Like most financial guidelines, this number can vary based on your situation. But 4% is often too high these days, with people living longer and money just not stretching as far, according to Braun.

His new advice? Three to 3.5%.

“The pandemic put a deep dent in investment returns,” Braun said. “Inflation is doing that, too.”

Avoid Credit Cards or Never Carry a Balance

U.S. credit card balances increased by $46 billion in the second quarter of 2022, according to the latest Quarterly Report on Household Debt and Credit from The Federal Reserve Bank of New York’s Center for Microeconomic Data. That’s a 13% increase for the same period in 2021 — the largest in more than two decades.

“It’s hard to look at someone and say, ‘Don’t do this’ when so many people are,” Moore said. “There are often extenuating circumstances.”

McCreary calls credit cards a “necessary evil” and notes that building credit typically starts with having them. You just need to use them responsibly.

“If you’re not in a position to pay off your balance in full each month, pay what you can and chip away at your balance over time,” McCreary said. “The magic number tends to be 30% when it comes to how much of your credit utilization you’re using. Aim to keep your balances below 30%.”

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About the Author

David Herman traces his love for journalism and storytelling back to age 9, when he created his own “front pages” on binder paper to cover the top news and sports stories of the day. He wasn’t much of an athlete and was never the first kid picked for anything, until one of his grade-school teachers divided his class into teams for an essay-writing contest, and Herman was, for once, the first one of the board. It was one of several moments that pointed him toward a writing career. After graduating from Gonzaga University, he wrote for newspapers in Washington and Idaho before moving to the web with MSNBC.com, Olympics.com and MSN.com, eventually serving as managing editor for both the MSN homepage and Microsoft News. Now a content designer at Meta, he’s also the author of “Almost Yankees: The Summer of ’81 and the Greatest Baseball Team You’ve Never Heard Of” – an homage to his first favorite baseball team. He lives in Seattle with his wife, three children and a chocolate lab named Charlie. Dave Herman (@jdavidherman) / Twitter
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